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Maritime LawHandbook

Editors:Christian BreitzkeJonathan LuxPhilomene Verlaan

This handbook has been prepared under the auspices of Committee ‘A’(Maritime and Transport Law) of the Section on Business Law of the

International Bar Association

2011

Maritime Law HandbookSuppl. 40 (August 2011) iii

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Maritime law handbook/editorial board, Hans-Christian Albrecht . . . [et al.]; edited by Has-Christian Albrecht and Roger Heward, p. cm.

‘Prepared under auspices of Committee ‘‘A’’ of the Section on Business Law of the InternationalBar Association.’

Rev. ed. of: Maritime law/edited by Lennart Hagberg. 1976–ISBN 9065443320 (loose-leaf)1. Maritime law. I. Albrecht, Hans-Christian. II. Heward, Roger. III. International Bar Association,

Section on Business Law, Committee ‘A’. IV. Maritime law.K1155.4.M36 1987 87–17920343 0.096-dc 19 CIP[342.396]

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ivMaritime Law HandbookSuppl. 40 (August 2011)

Philippines

Domingo G. Castillo

Part I. Arrest of Vessels

Updated to 28 March 2011

Maritime Law HandbookSuppl. 40 (August 2011) Philippines Part I – i

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Philippines Part I – iiMaritime Law HandbookSuppl. 40 (August 2011)

Domingo G. Castillo

Domingo G. Castillo was born in Manila, Philippines, in 1952. He obtainedhis Bachelor of Science in Business Administration (BSBA) and Bachelor ofLaws (Ll B) from the University of the Philippines in 1973 and 1977, respec-tively. He then obtained his Master of Laws (Ll M) in 1981 from New YorkUniversity. Before returning to the Philippines, he was a foreign attorney withthe San Francisco law firm of Heller, Ehrman, White and McAuliffe in 1982 andthe London firm of Sinclair, Roche and Temperley in 1983. He is currently apartner in the firm of SyCip Salazar Hernandez & Gatmaitan, with offices at theSeventh Floor, SyCipLaw Center, 105 Paseo de Roxas, 1226 Makati City,Philippines, Tel. Nos. (63-2) 982-3500, 982-3600, and 982-3700, Fax Nos.:817-3896 and 818-7562; e-mail address: [email protected]

Mr Castillo is a member of the Philippine Bar, Past President of the MaritimeLaw Association of the Philippines, a Director of the Integrated Bar of thePhilippines (Makati Chapter) in 1991–1995 and Chairman of the Inter-PacificBar Association (IPBA), 2009–2011. He delivered a paper on ‘Obtaining Secu-rity in Maritime Cases’ before the International Bar Association’s Section onBusiness Law in Hong Kong in 1991 and a paper on the ‘Current Operating andLiability Issues in the Pacific Rim Passenger Cruise Trade’ in 1995 in San Fran-cisco, California, before the IPBA. He has attended a number of maritimeconferences, notably the Maritime Law Association of the United States –Fall Meetings held in Orlando, Florida, Scottsdale, Arizona, and Bermudaand Palm Desert in 1989, 1991, 1993, and 1997, respectively, and the SecondAnnual Conference of the IPBA held in Sydney, Australia in May, 1992.In October 2000, he was invited by the China Maritime Law Association todeliver a paper on ‘Maritime Fraud and Scams’ in Shenzhen, People’s Republicof China. He delivered a paper on the ‘Limitation of Liability of Shipowners’before the 4th International Conference in Maritime Law in Piraeus, Greece, on8 June 2001.

Mr Castillo has handled various cases involving vessel arrest, collisions, oilpollution, cargo claims, personal injury, and insurance claims.

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Maritime Law HandbookSuppl. 40 (August 2011) Philippines Part I – iii

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Philippines Part I – ivMaritime Law HandbookSuppl. 40 (August 2011)

Table of Contents

List of Abbreviations vii

Part I. Arrest of Vessels 1

Introductory Note 1

CHAPTER 1. Sources of Philippine maritime law 1

CHAPTER 2. Applicable international conventions 1

CHAPTER 3. Competency of courts or other authority 23.1. Territorial extent of the jurisdiction of the

Regional Trial Courts or the MetropolitanTrial Courts 2

3.2. Choice of forum: arbitration and jurisdictionclauses 2

CHAPTER 4. Immunity of State-owned vessels 3

CHAPTER 5. Types of claims for which arrest can be requested 3

CHAPTER 6. Other specific preconditions to an arrest 36.1. Foreign ship mortgages 46.2. Domestic ship mortgages 46.3. Claims for necessaries 46.4. Other monetary claims against the owner

of a vessel 5

CHAPTER 7. Definition of ‘vessel’ 5

CHAPTER 8. Evidence required to support an arrest application 6

CHAPTER 9. Sister ships 7

CHAPTER 10. Demise- or time-chartered vessels 7

CHAPTER 11. Form of application 7

CHAPTER 12. Must the arresting party put up security? 8

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Maritime Law HandbookSuppl. 40 (August 2011) Philippines Part I – v

CHAPTER 13. Representation by counsel, power of attorney 813.1. Movement of ship while under arrest 9

CHAPTER 14. Court hearing 9

CHAPTER 15. Provision on counterbond by defendants 9

CHAPTER 16. Proceedings for maintaining an arrest 10

CHAPTER 17. Costs and advances for court proceedingsand custody 10

CHAPTER 18. Enforcement of the order of arrest 11

CHAPTER 19. Service of order of arrest 11

CHAPTER 20. Time element 11

CHAPTER 21. Appeal by defendant 11

CHAPTER 22. Forced sale in the arrest procedure 12

CHAPTER 23. Claims for damages by the owner of the arrestedvessel 12

CHAPTER 24. Special remarks 1224.1. Forum Non Conveniens 1224.2. Treatment of foreign and national vessels 13

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Philippines Part I – viMaritime Law HandbookSuppl. 40 (August 2011)

List of Abbreviations

AUTHORIZED LAW REPORTS

SCRA Supreme Court Report AnnotatedPhils. Philippine ReportsOG Official Gazette

OTHER ABBREVIATIONS

PD Presidential DecreeBP Batas PambansaMARINA Philippine Maritime Industry AuthorityPCG Philippine Coast GuardPOEA Philippine Overseas Employment AdministrationRA Republic Act

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Maritime Law HandbookSuppl. 40 (August 2011) Philippines Part I – vii

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Philippines Part I – viiiMaritime Law HandbookSuppl. 40 (August 2011)

Part I. Arrest of Vessels

INTRODUCTORY NOTE

The Philippines is considered a maritime country: more than 7,100 islands arescattered throughout its national territory. It is separated from its Asian neigh-bours by big bodies of water. Travel through its waters is one of the cheapest andprincipal modes of transporting passengers and goods to the major islands of thecountry, as well as serving as a vital link to international trade. As such, thePhilippines has its fair share of maritime cases, such as collisions, sinking,salvage, piracy, hijacking, and arrest of ships.

The law and procedure relating to the arrest of vessels may be found inPresidential Decree (PD) No. 1521 (otherwise known as the ‘Ship MortgageDecree of 1978’) and in the general provisions of the 1997 Rules of Civil Pro-cedure on attachment. Under BP Blg. 129, the Regional Trial Court exercisesexclusive original jurisdiction in all actions in admiralty and maritime jurisdic-tion where the demand or claim exceeds PHP 300,000.00 (approximatelyUSD 6,923.00) or, in Metro Manila, where such a demand or claim exceedsPHP 400,000.00 (approximately USD 9,231.00). (sections 19(3), BP 129, asamended by Republic Act (RA) No. 7691.)

1. SOURCES OF PHILIPPINE MARITIME LAW

Philippine maritime law is not covered by a single body of law but by variousstatutes. These are the Philippine Code of Commerce of 1888, New Civil Codeof 1952, Carriage of Goods by Sea Act, Insurance Code of 1981 on marineinsurance, 1997 Rules of Civil Procedure, and PDs (notably PD 1521) andrules and regulations promulgated by Philippine administrative agencies, suchas the Philippine Maritime Industry Authority (MARINA), the Philippine Over-seas Employment Administration (POEA), and the Philippine Coast Guard(PCG), which are also tasked by Philippine law to administer maritime andmaritime-related work.

2. APPLICABLE INTERNATIONAL CONVENTIONS

The Philippines has not adopted the International Convention Relating tothe Arrest of Sea-Going Ships, signed at Brussels on 10 May 1952. Neither has itadopted the International Convention for the Unification of Certain RulesRelating to the Immunity of State-Owned Vessels.

Maritime Law HandbookSuppl. 40 (August 2011) Philippines Part I – 1

None of the international conventions on maritime liens and mortgages hasbeen ratified by the Philippines.

3. COMPETENCY OF COURTS OR OTHER AUTHORITY

The Regional Trial Courts are the competent courts to issue an order of arrestof vessels to enforce a civil claim by an action in rem, should the demand orclaim exceed PHP 300,000.00 or, in Metro Manila, where such a demand orclaim exceeds PHP 400,000.00. In the event that the demand or claim does notexceed PHP 300,000.00 or, in Metro Manila, where such a demand or claim doesnot exceed PHP 400,000.00, the Metropolitan Trial Courts shall have exclusivejurisdiction (RA 7691, as amended by Circular No. 21-99 dated 15 April 1999 ofthe Office of the Court Administrator).

However, vessels can be ‘detained’ in circumstances where a civil action is notinvolved. Examples of these circumstances are: vessels found in Philippineterritorial water with contraband goods or engaged in smuggling pursuant tothe provisions of the Tariff and Customs Code of the Philippines of 1978; aforeign-flag vessel found fishing illegally in Philippine territorial waters; and avessel which has not obtained the required permits or licenses prescribed by theMARINA and the PCG.

3.1. Territorial extent of the jurisdiction of the Regional Trial Courtsor the Metropolitan Trial Courts

The jurisdiction of the Regional Trial Courts or, when appropriate, the Metro-politan Trial Courts, may be exercised by the implementing Sheriff in arresting avessel within Philippine territorial waters.

3.2. Choice of forum: arbitration and jurisdiction clauses

In the Philippines, it may be difficult to arrest a vessel to obtain security in acontract dispute where said contract explicitly provides for arbitration inanother jurisdiction, in view of the decision of the Philippine Supreme Courtin the case of National Union Fire Insurance Co. of Pittsburgh v. Stolt-Nielsen Phil-ippines, Inc. (184 SCRA 682), which upheld an arbitration clause by suspendingan action commenced in the lower court in breach of an arbitration agreementand referred the parties to arbitration in New York, ruling that:

Even a cursory reading of the subject Bill of Lading, in relation to theCharter Party, reveals the Court’s patent lack of jurisdiction to hear anddecide the claim.

xxx xxx xxx

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Philippines Part I – 2Maritime Law HandbookSuppl. 40 (August 2011)

Arbitration, as an alternative mode of settling disputes, has long beenrecognized and accepted in our jurisdiction (Chapter 2, Title XIV, Book IV,Civil Code). Republic Act No. 876 (The Arbitration Law) also expresslyauthorizes arbitration of domestic disputes. Foreign arbitration as a systemof settling commercial disputes of an international character was likewiserecognized when the Philippines adhered to the United Nations ‘Conven-tion on the Recognition and the Enforcement of Foreign Arbitral Awardsof 1958’, under the 10 May 1965 Resolution No. 71 of the PhilippineSenate, giving reciprocal recognition and allowing enforcement ofinternational arbitration agreements between parties of different national-ities’ within a contracting state. x x x

It has not been shown that the arbitral clause in question is null and void,inoperative, or incapable of being performed. Nor has any conflict beenpointed out between the Charter Party and the Bill of Lading.

In fine, referral to arbitration in New York pursuant to the arbitrationclause, and suspension of the proceedings in Civil Case No. 13498 below,pending the return of the arbitral award, is, indeed called for.

4. IMMUNITY OF STATE-OWNED VESSELS

The Philippines is not a signatory nor has it adopted the InternationalConvention for the Unification of Certain Rules Relating to the Immunityof State-Owned Vessels. Likewise, the Philippines has no legislation to imple-ment the aforesaid Convention. Hence, the matter of the question on the arrestof State-owned vessels is still unsettled and has not been squarely ruled upon byPhilippine courts.

5. TYPES OF CLAIMS FOR WHICH ARREST CAN BE REQUESTED

Article 1(2) of the 1952 Arrest Convention defines ‘arrest’ as the ‘detention ofa ship by judicial process to secure a maritime claim, but does not include theseizure of a ship in execution or satisfaction of a judgment’. Using this defini-tion, there is a wide right of arrest in the Philippines, namely, that any monetaryclaim against an owner of a vessel can be pursued by way of an arrest. However,there are only two cases in which a vessel can be arrested in respect of a claimwhich does not lie against the true owner of the vessel – namely, mortgages andnecessaries.

6. OTHER SPECIFIC PRECONDITIONS TO AN ARREST

The preconditions to an arrest depend upon the nature of the claim inquestion.

The details are set out below.

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6.1. Foreign ship mortgages

Section 15 of PD 1521 requires that the:

mortgage, hypothecation, or similar charge has been duly and validly exe-cuted in accordance with the laws of foreign nation under the laws of whichthe vessel is documented and has been duly registered in accordance withsuch laws in a public register either at the port of registry of the vessel or at acentral office, . . . provided, however, that such preferred mortgage lien inthe case of a foreign vessel shall be subordinate to maritime liens for repairs,supplies, towage, use of drydock or marine railway, or other necessaries,performed or supplied in the Philippines.

6.2. Domestic ship mortgages

The applicant of the arrest of a vessel should show the following:

(a) that the mortgagee is a citizen of the Philippines, or a corporation 60% ofthe capital of which is owned by citizens of the Philippines;

(b) that the purpose of financing was for the construction, acquisition, orpurchase of the vessel or the initial operation of the vessel;

(c) that the mortgage is registered in the registry of vessels to be known as‘Register of Philippine Vessels’ which shall be kept in the office of theMARINA in the homeport for vessels of domestic ownership and at theMARINA Central Office for vessels for overseas trade;

(d) that the Register of Philippine Vessels shall contain the name of the vessel;the names of the parties; the time and date of the recording of the instru-ment; the ownership of the vessel so mortgaged; the amount and date ofmaturity of the mortgage; the name, citizenship, nationalities and resi-dence of owners, and any material change of circumstances in respect ofany of the preceding items; and

(e) that a copy of the mortgage has been furnished to the Central Bank of thePhilippines.

6.3. Claims for necessaries

Section 21 of PD 1521 requires that any person furnishing necessaries to anyvessel, whether foreign or domestic, should prove that he has done so ‘upon theorder of the owner of such vessel or of a person authorized by the owner’ and itshall be necessary to prove that credit was given to the vessel. Claims for neces-saries constitute a maritime lien under Philippine law.

However, in the case of Crescent Petroleum Ltd. v. M/V Lok Maheshwari, et al.(G.R. No. 155014, 11 November 2005), the Philippine Supreme Court denied a

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foreign corporation’s claim of a maritime lien on a foreign vessel docked in thePhilippines for the satisfaction of unpaid supplies it furnished to the vessel in aforeign port.

The court held that PD 1521 was enacted primarily to protect Filipino sup-pliers and was not intended to create a lien from a contract for supplies betweenforeign entities delivered in a foreign port. The court further ratiocinated thatextending the benefit of a maritime lien to foreign vessels and foreign suppliersof necessaries would not promote the public policy behind the enactment of thelaw to ‘accelerate the growth and development of the shipping industry’ and ‘toextend the benefits accorded to overseas shipping under Presidential DecreeNo. 214 to domestic shipping’.

6.4. Other monetary claims against the owner of a vessel

To obtain an arrest in respect of a general monetary claim, it is necessary forthe claimant to show that the defendant is non-resident in the Philippines andthat he has no other property, apart from the vessel to be attached, against whichthe claim may be satisfied in the event of a final judgment in favour of theplaintiff (section 1(f), Rule 57, 1997 Rules of Civil Procedure).

In all cases, the complaint and any accompanying affidavit will be subject tojudicial scrutiny prior to the issuance of the arrest order. Before the arrest of thevessel, the applicant must post a bond in favour of the adverse party, in anamount fixed by the court in its order granting the issuance of the Writ of Arrest,which may be equal to the applicant’s demand or to the value of the vessel to bearrested. The bond provides that the applicant will pay all the costs which maybe adjudged to the adverse party and all damages which he may sustain by reasonof such an arrest, if the court shall finally adjudge that the applicant was notentitled thereto (section 4, Rule 57, 1997 Rules of Civil Procedure). The appli-cant must advance custodial expenses to the sheriff implementing the arrestorder of the court.

7. DEFINITION OF ‘VESSEL’

Under Philippine law, the term ‘vessel’ serves to designate every kind of craftby whatever particular or technical name it may now be known or which nau-tical advancement may give it in the future. (Justice Ramon Aquino, PhilippineTransportation, Admiralty, Customs and Aviation Laws, p. 92.) In the case of YuCon v. Phil. (41 Phil. 770), a vessel was broadly referred to as any kind of craft,considering only the hull. And in the subsequent cases of Lopez v. Dureulo(52 Phil. 229) and Madrigal Shipping Co. v. Gancayco (50 OG (No. 5) 2083), thewords ‘ship’ (nave) and ‘vessel’ (buque), in their grammatical sense, were appliedto designate every kind of craft, large or small, merchant vessels or war vessels, adesignation which does not differ essentially from its juridical meaning,

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according to which, for purposes of the Mercantile Registry, vessels are consid-ered to include not only those engaged in navigation, whether coastwise or onthe high seas, but also floating docks, pontoons, dredges, scows, and any otherfloating apparatus destined for the service of the industry or maritimecommerce.

8. EVIDENCE REQUIRED TO SUPPORT AN ARREST APPLICATION

In the event that the arrest of the vessel is based on a default in the mortgage,the verified petition or complaint must be accompanied by an affidavit from thepetitioner or any person who personally knows the facts, that a default in themortgage has occurred, or that the petitioner has a maritime lien on the vessel.In addition, Section 5, Rule 7 of the 1997 Rules of Civil Procedure mandatesthat the plaintiff or principal party shall execute a certification against forumshopping.

In particular, section 11 of PD 1521 states:

Arrest of Vessels – Upon the filing of the petition for the judicial foreclosureof a Preferred Ship Mortgage, or immediately thereafter, the applicant mayapply ex parte for an order for the arrest of the mortgaged vessel or vesselsand the judge shall immediately issue the same, provided that it is made toappear by affidavit of the applicant, or of some other person who person-ally knows the facts that a default in the mortgage has occurred and thatapplicant files a bond executed to the adverse party in an amount to befixed by the judge, not exceeding the applicant’s claim, conditioned thatthe latter will pay all the costs which may be adjudged to the adverse partyand all damages which he may sustain by reason of such arrest, if the courtshall finally adjudge that the applicant was not entitled thereto.

If the arrest is based on a claim against the owner of the vessel, the plaintiffmust execute an affidavit stating that he has a valid claim, and that the defendantis a non-resident and has no other property in the Philippines other than thevessel to be arrested.

In view of the usual urgency in the filing of a petition for the issuance of anarrest order, a non-resident petitioner may authorize a Philippine lawyer to filethe petition or complaint on behalf of said non-resident petitioner. In the case ofthe execution of the certification against forum shopping, a special power ofattorney authorizing a Philippine lawyer to sign the same on behalf of thepetitioner or complainant is necessary due to the decisions of the PhilippineSupreme Court that a certification against forum shopping signed by counsel inthat capacity is a defective certification and constitutes a valid cause of dismissalof the petition or complaint. (Marine Pilots Association v. Philippine Ports Author-ity, G.R. No. 130150, 1 October 1998.)

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9. SISTER SHIPS

The Philippines has not adopted nor is it a signatory to the InternationalConvention to the Arrest of Sea-Going Ships of 10 May 1952. Therefore thePhilippines does not recognize the arrest of vessels other than the one in con-nection with which the case arose.

However, under the rules of attachment in the 1997 Rules of Civil Procedure,an attachment against a sister ship or an associated ship may be made, providedthat the ship seized is shown or alleged to be also owned by the same defendantowner, whether he be unknown or disclosed (sections 2, 7, and 14, Rule 57,1997 Rules of Civil Procedure).

This recourse in the arrest of sister ships is possible even if the other vessels arenot directly owned by the debtor but owned by him through a corporation.Philippine courts can invoke the doctrine of ‘piercing the corporate veil’ if it canbe shown that the fiction of corporate personality is being used as a shield tofurther an end subversive of justice, or as an alter ego, adjunct or business conduitfor the sole benefit of the stockholder. (McConnell v. Court of Appeals,1 SCRA 722.)

10. DEMISE- OR TIME-CHARTERED VESSELS

To charge a vessel for repairs or supplies, they must have been furnished toand made for the benefit of the vessel and, more importantly, ordered by some-one authorized by the owner to contract on behalf of the vessel. PD1521 authorizes both the owner of the vessel and the charterer to procurerepairs, supplies, and towage to enable the supplier thereof to have a maritimelien on the vessel which will authorize him to arrest the same. PD 1521, however,requires that ‘no person tortiously or unlawfully in possession or charge of thevessel shall have authority to bind the vessel’ and neither when the furnisherknew, or by exercise of reasonable diligence could have ascertained, that becauseof the terms of the ‘charter party, agreement for sale of the vessel, or for anyother reason, the person ordering the repairs, supplies or other necessaries waswithout authority to bind the vessel therefor’. (sections 22 and 23, PD 1521.)

11. FORM OF APPLICATION

In order to have the right to arrest a vessel, the following requirements must becomplied with:

(a) Affidavit of the applicant, or of some other person who personally knowsthe facts which would be the basis for the arrest of the vessel, for example,default in the ship mortgage, or circumstances regarding the furnishing of

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the repairs, supplies, or towage to the vessel and by whom ordered, or thecircumstances of the monetary claim against the owner of the vessel.

(b) Verified petition containing the precise statement of the material facts onwhich the applicant relies.

(c) Execution by the plaintiff or principal party of a certification againstforum shopping.

(d) Applicant files a bond executed to the adverse party in an amount tobe fixed by the judge, not exceeding the applicant’s claim, on conditionthat the latter will pay all the costs which may be adjudged to theadverse party and all damages which he may sustain by reason of sucharrest, if the court shall finally adjudge that the applicant was not entitledthereto.

An order of arrest is then issued by the Philippine court ex parte, that is,without a hearing by a Judge, but the writ of arrest may not be enforced unlesspreceded or contemporaneously accompanied by service of summons. It wouldnormally take one to three working days from the filing of the petition orcomplaint to obtain the arrest order.

12. MUST THE ARRESTING PARTY PUT UP SECURITY?

Yes. As stated above, a Philippine court will issue the Order of Arrest evenwithout a hearing upon filing of a bond in an amount to be fixed by the court(but not exceeding the amount of the applicant’s claim) and on condition thatthe latter will pay all costs and all damages which the adverse party may sustain ifthe court shall finally adjudge that the applicant was not entitled to arrest theship. The security may be in the form of cash or surety bond issued by a localbonding company which will often charge a premium from 1% to 2-1/2% ofthe amount covered by the bond.

13. REPRESENTATION BY COUNSEL, POWER OF ATTORNEY

Generally, special powers of attorney are not required by lawyers or by thecourts for the purposes of commencing actions or arresting a vessel, except forthe execution of the certificates against forum shopping, where the plaintiff orprincipal party specifically authorizes the local lawyer to sign for and on itsbehalf.

Although it is not mandatory, a personal claimant usually retains the servicesof a local lawyer to prepare and file the affidavit or a verified petition or com-plaint and to deal with the Sheriff. However, it is advisable for a foreign claimantto retain a local lawyer to ensure that the action is properly constituted and thearrest of the vessel carried out with a minimum of delay.

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13.1. Movement of ship while under arrest

An arrest immobilizes the ship at the place where it was arrested, and it cannotbe moved without a court order or the consent of all interested parties. Ifconsent is not given or available, the court will usually grant an order author-izing the ship to be moved if the judge is satisfied that the proposed new locationis no less safe than the ship’s location when arrested, the ship will not be in anyjeopardy during the proposed move and that she will not be considered a nav-igable hazard to other seacraft in the area. The order may include terms to ensurethat reasonable precautions are taken for the safety of the ship, including havinga pilot conduct the ship during the move, providing for assisting tugs, and so on,and for marine insurance coverage.

14. COURT HEARING

As stated earlier, the court shall ex parte grant the Order of Arrest upon thefiling of the affidavit, verified petition or complaint, execution and the certifi-cation against forum shopping, and the posting of a bond in favour of theadverse party in an amount to be fixed by the court in an amount not exceedingthe applicant’s claim.

15. PROVISION ON COUNTERBOND BY DEFENDANTS

An order of arrest may be discharged/lifted on the following grounds: (i) theposting of a counterbond or cash deposit in an amount double the value of theclaim to secure the payment of any judgment that the petitioner or plaintiff mayrecover in the action; or (ii) the order of arrest was improperly or irregularlyissued. Sections 12 and 13 of PD 1521 provide:

SEC. 12. Discharge of Order of Arrest; Counterbond – At any time after an orderof arrest has been granted, the party whose vessel or vessels had been arrested,or the person appearing in his behalf, may, upon reasonable notice to theapplicant, apply to the judge who granted the order, or to the judge of thecourt in which the action is pending, for an order discharging the order ofarrest. That judge shall order the discharge of the arrest if a cash deposit ismade, or counterbond executed to the creditor is filed, on behalf of theadverse party, with the clerk or judge of the court where the application ismade in an amount double the value of the claim to secure the payment ofany judgment that the creditor may recover in the action. Upon the filing ofsuch counterbond, copy thereof shall forthwith be served on the creditor orhis lawyer. Upon discharge of the order of arrest, the property arrested orseized shall be delivered to the party making the deposit or giving the

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counterbond, or the person appearing in his behalf, the deposit or counter-bond aforesaid standing in place of the vessel or vessels released. Should suchdeposit or counterbond for any reason be found to be, or become insuffi-cient, and the party furnishing the same fails to file an additional counter-bond, the attaching creditor may apply for a new order of arrest or seizure.

SEC. 13. Discharge of Order of Arrest for Improper or Irregular Issuance – Theparty whose vessel has been arrested may also, at any time either before orafter the release of the arrested vessel, or before any arrest or seizure hasbeen effected, upon reasonable notice to the creditor, apply to the judgewho granted the order, or to the judge of the court in which the action ispending, for an order to discharge the order of arrest or seizure on theground that the same was improperly or irregularly issued. After hearing,the judge shall order the discharge of the order of arrest or seizure if itappears that it was improperly or irregularly issued and the defect is notcured forthwith.

In practice, however, the arrest or attachment is not automatically lifted untilthe counterbond is approved by the attaching creditor. If the counterbond isobjected to, the judge has to rule on the sufficiency and validity of thecounterbond.

16. PROCEEDINGS FOR MAINTAINING AN ARREST

There are no separate proceedings required to maintain an arrest. If a plaintiffunreasonably delays the prosecution of his action, it is possible for a defendantto apply for the action to be dismissed for want of prosecution and for the releaseof the vessel from arrest.

17. COSTS AND ADVANCES FOR COURT PROCEEDINGS AND CUSTODY

The expenses of the sheriff and/or his deputies are initially shouldered by thepetitioner or plaintiff, and are charged as costs of suit. The allowances of thesheriff and/or his deputies are usually agreed upon by the petitioner or plaintiff.

Generally, the expenses to be incurred in arresting a vessel in the Philippinesare:

(i) filing fees (approximately 0.5% of the claim);(ii) sheriff’s fees;

(iii) guards on board the vessel;(iv) premium for the bond; and(v) lawyer’s fee ranging from 5% to 10% of the amount involved, although

this is negotiable.

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18. ENFORCEMENT OF THE ORDER OF ARREST

Service of the Order of Arrest on the master of the vessel to be arrestedimplements the order of the court to detain the same. Any movement of thevessel thereafter without the consent of the parties or pursuant to an order of thecourt would subject the person responsible to prosecution for contempt ofcourt.

19. SERVICE OF ORDER OF ARREST

The court sheriff shall thereupon serve the Order of Arrest on the master ofthe vessel (being the owner’s representative on board the vessel) and/or the shipagent (under Article 586 of the Philippine Code of Commerce considering thatthe ship agent represents the vessel in the port in which she happens to be), anddetain the vessel until further orders from the court. The sheriff shall thereuponrender a Sheriff’s Return, giving a report on the manner of his arrest of the vessel,and giving a detailed inventory of the equipment on board under his custody.The court sheriff shall be responsible to the court for the condition and main-tenance of the vessel during the proceedings which he does through the sheriff’sguards placed on board the vessel during the arrest.

To ensure that the vessel will not leave Philippine waters except upon lawfulorders of the court taking cognizance of the case, the MARINA, the PCG, thelocal Bureau of Customs, and the local port authority or harbour master must beserved with a copy of the arrest order. In practice, these authorities are oftenimpleaded as nominal defendants. This is to ensure that the court’s order ofarrest is binding on these agencies directly and not as a matter of notice. In thismanner, the vessel will not be cleared for departure unless the court issuesanother order lifting the arrest order.

20. TIME ELEMENT

It is necessary to serve the Order of Arrest upon the vessel to effect an arrest.An arrest can usually be effected within a few days of the receipt by the court ofthe complaint or petition together with the documents listed in Chapter 11above. Like Court officers, Sheriffs are available during office hours to effectservice.

21. APPEAL BY DEFENDANT

Appeal procedures are available against any judgment or order, whether inter-locutory or final, relating to the subject matter of the litigation in which thevessel is arrested, but otherwise no direct appeal against the arrest itself is

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possible. As mentioned above, the defendant may challenge the issuance of thewarrant and apply to the court, with notice to the plaintiff, to set aside the arrest.

22. FORCED SALE IN THE ARREST PROCEDURE

If after trial the court finds the petitioner’s cause meritorious, judgment shallbe rendered for the sum due and an order issued that the same be paid into courtwithin a period of not less than 90 days nor more than 120 days from the entry ofjudgment, and that in default of such payment the property be sold to realize themortgage debt and costs (section 2, Rule 68, 1997 Rules of Civil Procedure).However, in the enforcement of a maritime lien, the vessel may be the subject ofjudicial sale as soon as the judgment becomes final.

The procedure in the judicial sale of a vessel in the Philippines is the same as inthe sale of any item which was the subject of foreclosure. Before the sale of thevessel on foreclosure, notice of the sale must be posted in three public places inthe municipality or city where the sale is to take place, for not less than five normore than ten days. The sale must be made at public auction to the highestbidder. In the event of a Philippine flag vessel, a foreign mortgagee or foreignnational whose country has diplomatic relations with the Philippines, or whosecountry grants reciprocal rights to Filipino citizens, is qualified to bid in saidforeclosure sale (section 20, PD 1521). In case the purchaser of a Philippine flagvessel is a foreign individual or entity, the MARINA shall, upon presentation ofthe certificate of sale, cancel the Philippine registration of the vessel and issue adeletion certificate to that effect upon request (ibid.).

It must be stressed that under Philippine law, upon the judicial or extrajudicialsale of a vessel, all pre-existing claims in the vessel are terminated. In otherwords, the vessel becomes free from pre-existing claims. The pre-existing claimswill be satisfied from the proceeds of the sale and consequently the vessel is ‘soldfree from all pre-existing claims thereof’.

23. CLAIMS FOR DAMAGES BY THE OWNER OF THE ARRESTED VESSEL

Damage sustained by the owner of the arrested vessel may be claimed for onthe bond filed by the applicant since the bond was purposely filed in the case toanswer all costs and damage which the adverse party may sustain if the courtshall finally adjudge that the applicant was not entitled to arrest the ship.

24. SPECIAL REMARKS

24.1. Forum Non Conveniens

An admiralty action in rem against the vessel may be filed before any courthaving jurisdiction over said vessel, since the action is against the vessel herself.

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However, one controversial issue which is often raised in Philippine courts is thequestion of forum non conveniens.

It is normal in maritime practice that claims are filed by one party of a certainnationality against the property of another party located in a third country,based on the principle that a vessel may be arrested to enforce a maritimelien wherever she may be. However, in the Philippines, some courts tend tolook at a number of points or ‘contacts’ in deciding whether to exercise itsjurisdiction over the action, that is, accessibility of sources of proof, availabilityof compulsory process for attendance of willing witnesses, and all other practicalissues that make trial of a case easy, expeditious, and inexpensive. If the courtfinds that Philippine law is inapplicable due to a lack of sufficient contacts withthe nationalities of the contending parties, the court may, in its discretion,dismiss the case on grounds of forum non conveniens even though it has juris-diction over the case. (Paras, ‘Philippine Conflict of Laws’ (1996 ed.) p. 36.)

24.2. Treatment of foreign and national vessels

There is no difference in the treatment of foreign vessels and national vesselsinsofar as arrest of a vessel is concerned.

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Philippines

Domingo G. Castillo

Part II. Flag and Registration of VesselsMortgages on Vessels


Maritime Law HandbookSuppl. 40 (August 2011) Philippines Part II – i

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Philippines Part II – iiMaritime Law HandbookSuppl. 40 (August 2011)

Domingo G. Castillo

Domingo G. Castillo was born in Manila, Philippines, in 1952. He obtainedhis Bachelor of Science in Business Administration (BSBA) and Bachelor ofLaws (Ll B) from the University of the Philippines in 1973 and 1977, respec-tively. He then obtained his Master of Laws (Ll M) in 1981 from New YorkUniversity. Before returning to the Philippines, he was a foreign attorney withthe San Francisco law firm of Heller, Ehrman, White and McAuliffe in 1982 andthe London firm of Sinclair, Roche and Temperley in 1983. He is currently apartner in the firm of SyCip Salazar Hernandez & Gatmaitan, with offices at theSeventh Floor, SyCipLaw Center, 105 Paseo de Roxas, 1226 Makati City, Phil-ippines, Tel. Nos. (63-2) 982-3500, 982-3600, and 982-3700, Fax Nos.: 817-3896 and 818-7562; e-mail address: [email protected]

Mr Castillo is a member of the Philippine Bar, Past President of the MaritimeLaw Association of the Philippines, a Director of the Integrated Bar of thePhilippines (Makati Chapter) in 1991–1995 and Chairman of the Inter-PacificBar Association (IPBA), 2009–2011. He delivered a paper on ‘Obtaining Secu-rity in Maritime Cases’ before the International Bar Association’s Section onBusiness Law in Hong Kong in 1991 and a paper on the ‘Current Operating andLiability Issues in the Pacific Rim Passenger Cruise Trade’ in 1995 in San Fran-cisco, California, before the IPBA. He has attended a number of maritimeconferences, notably the Maritime Law Association of the United States –Fall Meetings held in Orlando, Florida, Scottsdale, Arizona, and Bermudaand Palm Desert in 1989, 1991, 1993, and 1997, respectively, and the SecondAnnual Conference of the IPBA held in Sydney, Australia in May, 1992.In October 2000, he was invited by the China Maritime Law Association todeliver a paper on ‘Maritime Fraud and Scams’ in Shenzhen, People’s Republicof China. He delivered a paper on the ‘Limitation of Liability of Shipowners’before the 4th International Conference in Maritime Law in Piraeus, Greece, on8 June 2001.


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Philippines Part II – ivMaritime Law HandbookSuppl. 40 (August 2011)

Table of Contents

List of Abbreviations xi

Part II. Flag and Registration of Vessels and Mortgages on Vessels 1

A. Flag and Registration of Vessels and Vessels under Construction 1

CHAPTER 1. Sources of law and the principal rules arising therefrom 11.1. Importance of nationality and/or domicile of

owners 11.2. Links between registration and flag 2

CHAPTER 2. Registration of a vessel: procedure, costs, and so on 22.1. Type of register 22.2. Types of vessels eligible for registration 32.3. Rules regarding the legal form under

which owners of registered vesselsmay be organized 3

2.4. Particulars recorded 42.5. Costs 42.6. Errors in the Register: Legal effect,

correction, and so on 29

CHAPTER 3. Documentation required for registration 293.1. Generally 293.2. Differences between registration

for a new building (first registration)and a ship previously registered inanother country 29

3.3. When vessel was sold in an enforcedsale procedure in another country 31

CHAPTER 4. Deregistration (closing the register) 314.1. On a sale 314.2. After an actual or constructive total loss 314.3. Is mortgagee’s consent required? 314.4. Are permissions from governmental agencies

required? 31

CHAPTER 5. Legal effect of registration under civil lawof the country 31

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Maritime Law HandbookSuppl. 40 (August 2011) Philippines Part II – v

CHAPTER 6. Ratification of or adherence to the internationalconventions for the unification of certain rulesrelating to maritime liens and mortgages of 1926 and/or 1967 32

CHAPTER 7. Flagging in of vessels which remain registeredin another country 327.1. Permissions required, by whom? 337.2. Time for which Permission can be granted;

Possibilities of Prolongation 337.3. Conditions to be fulfilled to receive

permission 337.4. Documents required 35

CHAPTER 8. Essential laws and regulations applying to Philippinevessels in respect of manning, employment, socialsecurity, and so on 378.1. International Conventions 378.2. National laws and regulations – other than

those arising from the afore-mentionedconventions – in respect of: 38

CHAPTER 9. Essential laws and regulations applying to Philippinevessels with respect to safety of ships andenvironmental protection 389.1. International conventions 389.2. National laws and regulations 39

CHAPTER 10. Flagging out of vessels that remain registeredin the country 39

CHAPTER 11. Does the law of the country require the observationof laws and regulations in respect of manning,employment, social security, and/or in respect of shipsafety and environmental protection after the vessel isflagged out but still registered in the country? 39

CHAPTER 12. Registration of rights in respect of vesselsunder construction 3912.1. Type of register 3912.2. Content of record 3912.3. Inspection and search of record book 3912.4. Registration and fees 3912.5. Type of vessel which may be registered 40

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Philippines Part II – viMaritime Law HandbookSuppl. 40 (August 2011)

12.6. At what stage during the constructioncan a vessel be registered? 40

12.7. Which type of rights can be registered? 4012.8. Restrictions as to the nationality of the

purchaser of the vessel under construction 4012.9. Ownership of vessel under construction 40

B. Registration of Mortgages on Vessels and Vessels under Constructionand Legal Nature of Mortgages 40

CHAPTER 13. Sources of law 4013.1. Sources of national law and general

characterization of mortgages within the legalsystem of the country 40

13.2. Different types of vessel mortgages 4113.3. Applicable international conventions 41

CHAPTER 14. Register 4114.1. Description if separate from vessel’s register 4114.2. Documents and their legal form required for

registration of mortgages 4114.3. Costs of registration 43

CHAPTER 15. Definition of vessels which may be mortgaged 43

CHAPTER 16. Who can be a mortgagee 43

CHAPTER 17. Kind of rights and/or claims for which a mortgagecan be registered 4417.1. Existing rights/claims for definite amounts 4417.2. Future rights/claims and/or for indefinite

amounts 4417.3. As security for a guarantee 4417.4. As security for revolving debts 4417.5. Currency in which the mortgage can be

registered 44

CHAPTER 18. Claims for interest and costs 45

CHAPTER 19. Particulars recorded in respect of a mortgage 4519.1. In respect of a mortgage on a vessel registered

in the country 4519.2. In respect of a mortgage on a vessel which is

flagging in 45

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Maritime Law HandbookSuppl. 40 (August 2011) Philippines Part II – vii

CHAPTER 20. Further preconditions for the creationof a valid charge 46

CHAPTER 21. Priorities of registered mortgages inter se 46

CHAPTER 22. Priorities between mortgages and other registeredencumbrances under national law 46

CHAPTER 23. Relation of registered mortgages to unregisteredpreferential right 4623.1. Recognized right of retention 4623.2. Recognized possessory lien 4623.3. Recognized maritime liens 47

CHAPTER 24. What a registered mortgage attaches 47

CHAPTER 25. Effect of payment of debts secured by mortgages 47

CHAPTER 26. Assignability of mortgages 47

CHAPTER 27. Effect of change of ownership of vessel 47

CHAPTER 28. Protection of mortgagees against seizure, and so on 48

CHAPTER 29. Mortgage protection in case of deregistration of vessel 4829.1. Into the register of another country 4829.2. Into another register of the country 4829.3. In case of loss or constructive total loss of

vessel 48

CHAPTER 30. Liability of mortgagees 4930.1. In tort 4930.2. In contract 4930.3. In possession of the vessel 49

CHAPTER 31. Submission to enforced execution under themortgage 49

CHAPTER 32. Recording of mortgages on vessels under construction 4932.1. Type of mortgages 4932.2. Precondition for recording of a mortgage

under construction 5032.3. Documentation required for recording of a

mortgage on a vessel under construction 50

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Philippines Part II – viiiMaritime Law HandbookSuppl. 40 (August 2011)

32.4. Evidence of a duly recorded mortgage 5032.5. Who can legally hold a mortgage? 5032.6. In which way can a valid charge be created on

a vessel under construction? 5032.7. Legal effects of a valid mortgage on a vessel

under construction 5032.8. To what a registered mortgage of a vessel

under construction attaches? 5032.9. Effect of payment of a mortgage 5032.10. Can a mortgage be assigned? 5132.11. Effect of change of ownership of a vessel

under construction 5132.12. Procedure on delivery of the vessel 5132.13. Enforcement of mortgage on a vessel under

construction 5132.14. What other security will normally be given

for financing a vessel under construction if amortgage cannot be recorded 51

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Philippines Part II – xMaritime Law HandbookSuppl. 40 (August 2011)


PD Presidential DecreeBBC Bareboat CharterBP Batas PambansaBRL Bay and River LicenseCN Certificate of NumberCPR Certificate of Philippine RegistryCSR Continuous Synopsis RecordCO Certificate of OwnershipCOLREG International Regulations for Preventing Collisions at SeaCVR Certificate of Vessel RegistryCWL Coastwise LicenseDOC Document of ComplianceDOLE Department of Labor and EmploymentEO Executive OrderGT Gross TonnageITC International Tonnage Measurement CertificateMARINA Maritime Industry AuthorityMC Memorandum CircularMCO MARINA Central OfficeMR Motion for ReconsiderationMRO Maritime Regional OfficeLL International Convention on Load LineLOSC Law of the Sea ConventionPCG Philippine Coast GuardPCPR Provisional Certificate of Philippine RegistryPMMRR Philippine Merchant Marine Rules and Regulations of 1997PO Permit to OperateRA Republic ActSCI Special Certificate of InspectionSEC Securities and Exchange CommissionSMC Safety Management CertificateSOLAS Safety of Life at SeaSTCW International Convention on Standards of Training,

Certification and Watchkeeping for SeafarersSPN Special Permit to NavigateTCPR Temporary Certificate of Philippine RegistryOILPOL International Convention for the Prevention of Pollution

of the Sea by Oil

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Philippines Part II – xiiMaritime Law HandbookSuppl. 40 (August 2011)

Part II. Flag and Registration of Vesselsand Mortgages on Vessels

A. Flag and Registration of Vessels andVessels under Construction

1. SOURCES OF LAW AND THE PRINCIPAL RULES ARISING THEREFROM

1.1. Importance of nationality and/or domicile of owners

The Philippine system of ship registration appears at first blush to be fairlyrigid and restrictive. However, on closer examination and taking into accountPhilippine law on bareboat registry under Presidential Decree (PD) No. 760, asamended by PD 866 and PD 1711, the practical effect is that of a moderatelyrelaxed system.

The basic rule in the Philippines is that only vessels of Domestic Ownershipare entitled to a Certificate of Vessel Registry. By ‘Domestic Ownership’ ismeant ownership vested in citizens of the Philippines or corporations or asso-ciations organized under Philippine law, where at least 60% of the capital stockare wholly owned by Philippine citizens and, in the case of vessels engaged incoastwise trade, the president or managing directors shall be Philippine citizensand the members of the crew of the vessel, except specialized vessels, shall all becitizens of the Philippines.

The controlling interest of the corporation or association shall not be con-sidered as held by Philippine citizens:

(a) if less than 60% of the capital or capital stock is held by such citizens orsuch capital or capital stock is subject to any trust or fiduciary obligationin favour of any person not a citizen of the Philippines;

(b) if less than 60% of the capital or capital stock in said association orcorporation entitled to vote is in the hands of citizens of the Philippines;

(c) if by means of any contract or agreement, more than 40% of the capitalor capital stock can be voted directly or indirectly in favour of any personnot a citizen of the Philippines; or

(d) if by any other means, the control of more than 40% of the capital orcapital stock of the association or corporation is conferred upon orallowed to be exercised by any person not a Philippine citizen.

The fact that a ship-owning company has alien shareholders does not, byitself, prevent that corporation from being treated as a domestic corporation

Maritime Law HandbookSuppl. 40 (August 2011) Philippines Part II – 1

qualified for a Philippine Registry of its vessels, provided that the alien owner-ship does not exceed 40% of its capital stock.

The flexibility of the Philippine system of vessel registration was recentlyintroduced by the Bareboat Registry Scheme, which is more fully discussedinfra. Under this scheme, a foreign-owned vessel bareboat chartered to aPhilippine company would be entitled to fly a Philippine flag temporarily,coterminous with the existence of the bareboat charter, whose effectiveness hasbeen extended indefinitely unless otherwise revoked by the President of thePhilippines (Executive Order (EO) No. 667, 11 October 2007).

1.2. Links between registration and flag

Philippine-registered vessels are entitled to fly the Philippine flag. There areno provisions for Philippine vessels to fly the flag of another country.However, under PD 760, as amended, a foreign-owned vessel bareboat char-tered to a Philippine company would be entitled to fly the Philippine flagtemporarily.

To strengthen the integrity of Philippine-registered overseas vessels, thePhilippine Maritime Industry Authority (MARINA) has formulated stringentrequirements for companies seeking to avail themselves of the country’sbareboat chartering program under Memorandum Circular (MC) No. 181(22 January 2003, dealing with the accreditation for purposes of acquiring/operating Philippine-registered ships for international voyages) and MC182 (22 January 2003 providing the rules in the acquisition of ships underPD 760, as amended). This bareboat chartering program has been extendedindefinitely unless revoked by the President of the Philippines.

All these stringent measures imposed by the MARINA through the afore-citedmemorandum circulars were aimed at compliance with the provisions on ‘genuinelink’ under the Law of the Sea Convention (LOSC). The MARINA has been fearfulthat in the absence of a ‘genuine link’, the Philippine flag may be considered byother countries as a Flag of Convenience. ‘Genuine link’ has been defined by the1986 UNCTAD Convention on Conditions for Registration of Ships to includesuch key elements as effective national maritime administration, identification andaccountability of owners or operators, manning by nationals, management bynationals or persons domiciled in the state of registry, and a register of ships.

2. REGISTRATION OF A VESSEL: PROCEDURE, COSTS, AND SO ON

2.1. Type of register

The MARINA is the agency vested with the exclusive authority over the reg-istration and documentation of Philippine vessels. (EO Nos 125 and 125-A.)

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Philippines Part II – 2Maritime Law HandbookSuppl. 40 (August 2011)

Pursuant to this, contracts or transactions which provide evidence of own-ership or which affect the title of registered vessels have to be approved firstby the MARINA (section (F), PD 474). The registration of a vessel fordomestic trade is to be effected at its homeport, which is either a portof entry or the port of entry of the MARINA Regional Office (MRO) ofthe vessel’s homeport, while registration of a vessel for overseas trade shallbe effected only at the MARINA Central Office (MCO) (section V(3),MC 90).

2.2. Types of vessels eligible for registration

All types of motorized ships of domestic ownership and of more than 3 GT,all ships of domestic ownership engaged in towing/pushing or carrying goodsand/or passengers for hire regardless of tonnage, and all vessels acquired underPD 760 as amended by PD 866 and 1711 must be registered. Every ship used inPhilippine waters which is not a transient of foreign registry, shall be registeredwith MARINA. Ships owned by Philippine nationals to be used in internationalwaters shall be registered with MARINA. Pursuant to the foregoing, MARINAshall grant a Certificate of Philippine Registry (CPR) as evidence of registration,provided that such vessels as are not entered in the Philippine registry of shipsshall be required to secure a vessel identity certificate (Certificate of Number).(Regulation XV/3, Philippine Merchant Marine Rules and Regulations of 1997(PMMRR)).

2.3. Rules regarding the legal form under which ownersof registered vessels may be organized

Individuals who are Philippine citizens may own Philippine-registered vessels.Under PD 761, only vessels of domestic ownership are entitled to a Certificateof Philippine Registry, that is, any vessel which is owned by a citizen of thePhilippines. The term ‘domestic ownership’ means ownership vested in citizensof the Philippines, or corporations or associations organized under the laws ofthe Philippines, and, in the case of a corporation, this means a corporationorganized under Philippine laws and at least 60% of whose capital stock iswholly owned by Philippine citizens.

The fact that a corporation is partly owned by a non-Filipino citizen does notby itself prevent that corporation from being treated as a domestic corporationunder PD 761, provided the alien controlling interest in the corporation doesnot exceed 40% of its capital stock.

Philippine law further defines ‘controlling interest’ to forbid direct or indirectalien control through trusts or other fiduciary obligations, exercise of votingpower by non-citizens, contract or agreement, or by any other means.

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2.4. Particulars recorded

In the Register of Ships, the following facts concerning each vessel registeredshall be entered in such form and detail as may be prescribed:

Name of ShipFormer Names and registry (if applicable)Type of ShipCall signOfficial NumberIMO number (for passenger ships and 100 GT and above and for all cargoships of 300 GT and above)Hull MaterialPrincipal DimensionsTonnage (Gross/Net/Deadweight)Classification societyHorsepower (KW)Main engineBuilders/Place builtYear builtName, nationality and business address/residence of owner/operatorHomeportDate of issuance of Certificate of Philippine Registry; andAny material change of condition in respect to any of the preceding itemsincluding records of encumbrances (Regulation XV/9, PMMRR).

2.5. Costs

MARINA MC No.172 providing for the permanent implementation of the‘pro-poor’ reduced fees was amended by MARINA MC No. 2005-001. This wasfurther amended by MARINA MC No. 2008-06, thus:

1. Below 3 Gross Tonnage (GT) Fishing Boats to coverthe issuance of:

P250

– Certificate of Number (CN)– Permit to Operate (PO)– Motor Boat Operators License (MBOL)– Builder Certificate– Vessel Name Clearance

2. Below 3 GT Passenger Cargo Vessels to cover theissuance of:

P500

– Admeasurement– Special Certificate of Inspection (SCI)– Inspection Fee

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– Bay and River License (BRL)– Certificate of Public Convenience (CPC)/Provisional

Authority (PA)/Special Permit (SP) filing fee– Accreditation of Domestic Shipping Enterprises/

Entities– Vessel Name Clearance

3. 3 GT and below to cover the issuance of: P300– Certificate of Ownership (CO)– Certificate of Vessel Registry (CVR)

4. 3-15 GT Passenger/Cargo/Vessels to cover theissuance of:

P750

– Admeasurement– Builder Certificate– Relevant Safety Certificates– BRL– Marine Diesel Mechanic/Boat Captain

(as applicable)– Survey Inspection Fee– Plan Approval– Certificate of Public Convenience / Provisional

Authority/Special Permit filing fee (if applicable)– Accreditation of Domestic Shipping Enterprises/

Entities– Vessel Name Clearance

5. 3.01 GT to 14.99 GT Passenger/Cargo/Vessels tocover the issuance of:

P600 þ P3/GT

– CO– CVR

6. Boatbuilders of Vessels 15 GT and below to cover theissuance of:

P500

– License Certificate– Inspection Fee

The schedule of fees imposed by MARINA for the domestic shipping sectoris embodied in MARINA MC No. 2005-001 as amended by MARINA MCNo. 2008-06, as follows:

A. ON DOMESTIC SHIPPING

1. Vessel Acquisition/Bareboat Charter(BBC)/Extension/Renewal ofBBC/Importation/Exercise Option toPurchase/Lease Purchase of Vessel– Vessels ten years old and below P10,300.00/vessel– Vessels over ten years old P20,590.00/vessel

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– High-Speed Craft P31,200.00/vessel– Fishing Vessels– Vessels ten years old and below P10,300.00/vessel– Vessels over ten years old P20,590.00/vessel– Authority to acquire ship through local

constructionP10,300.00/vessel

2. Permanent Conversion of Vessel(s)TradingStatus from Overseas to Domestic

P20,590.00/vessel

3. Sub-Charter of BBC Vessel P20,590.00/vessel4. Local Sale / Local Purchase

a. Imported Vessel P20,590.00/vesselb. Local Vessel

> Steel-hulled/Aluminum-hulled/Fiberglass-hulled Vessels orcombination of both or any other typeof hull

P6,500.00/vessel

> Wooden-hulled Vessels– 35GT and above P2,600.00/vessel– below 35GT P650.00/vessel

5. Importation/Renewal of authority toimport vessel spare parts

1.8% of the invoice valueor a minimum of

P4,120.00/invoice to amaximum of P9,360.00/

invoice6. Importation/Renewal of authority to

import marine enginesP470.00/engine

7. Authority to Export/Renewal of authorityto export vessels

P3,900.00/vessel

8. Extension of validity of MARINA authorityto acquire/export vessels, including fishingvessels

P2,340.00/vessel/month

9. Extension of validity of MARINA authorityto import marine engines and spare parts

P390.00/invoice

10. Accreditation under MC. No. 186 P6,500.0011. Accreditation under MC No. 79/79-A

– Corporation P8,580.00– Partnership P5,150.00– Single Proprietorship P780.00

12. Endorsements– Board of Investments (BOI) Endorsement

for Company’s RegistrationP780.00

– Endorsement to Department of Finance(DOF) for availment of VAT exemption ofship’s importation under Republic Act(RA) 9295

P3,120.00/ship

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– Department of Foreign Affairs (DFA)Endorsement for Issuance of ProvisionalCertificate of Philippine Registry (PCPR)

P390.00

– Endorsement to DOF for availability ofVAT exemption for marine engines andship’s spare parts under R.A. 9295

P780.00/application

– Endorsement to Department of Laborand Employment (DOLE) for issuanceof AEP

P4,680.00/foreign crew(per person)

– Other Endorsements to other governmentagencies

P780.00/application

13. Amendment of any provision of CharterContract under PDs 760-866

P1560.00/vessel

14. Pre-termination of BBC of Vessel P780.00/vessel15. Amendment of SP/Exemption Permit (EP) P470.00/vessel16. Special Permit/Exemption Permit/Renewal

of SP/EP for foreign-owned/registered vesseland Philippine overseas vessel to temporarilyoperate in the domestic trade– Philippine-registered overseas vessel P15,600.00 minimum/

issuance/vessel orP156.00/50GT orfraction thereof,

whichever is higher– Foreign-registered vessel P120,000.00

minimum/month/vessel or P500.00/50 GT or fraction

thereof, whichever ishigher

17. Employment of Supernumerary P5,070.00/expatriate orsupernumerary with

duration not exceedingsix months

18. Surcharge for the late renewal ofaccreditation under MC 79 and 79-A– Corporation P470.00/day from date

of expiry or amaximum of

P47,000.00– Partnership P230.00/day from date

of expiry or amaximum of

P23,000.00

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– Single Proprietorship P80.00/day from dateof expiry or a

maximum of P8,000.00– For Motorbanca Operators, etc. P15.00/day from date

of expiry or amaximum of P750.00

19. Issuance of Certificate of Insurance orOther Financial Security in respectof Civil Liability for Oil Pollution(CLC 1992)

P1,560.00/vessel

20. Reissuance of Certificate of Accreditationdue to Change of Corporate/CompanyName

P780.00/company

21. Approval in principle to acquire vessel– one–ten years old P10,390.00/vessel– Above ten years old P20,590.00/vessel– High-Speed Craft P31,200.00/vessel

22. Amendment of BBC Hire/Monthly LeasePayments/Acquisition cost

P1,560.00/vessel

23. Transfer of rights and obligations over a vessel– one–ten years old P10,300.00/vessel– Above ten years old P20,590.00/vessel– High-Speed Craft P31,200.00/vessel

24. Amendment of mode of acquisition of vessel P1,560.00/application25. Amendment of MARINA approval by

deleting or inserting word(s) or phrase(s)and/or Deletion of post-approval conditionimposed by MARINA

P1,560.00/application

26. Ship Marking Plates (one-time)**subject to change in supplier’s price of brass

P1,000.00/plate

27. Annual Ship Validation Receipt P1.00 per GT but notlower than P150.00

B. ON SHIPYARD REGULATIONS

1. Licensing of Shipbuilders, Ship Repairers, Afloat Repairers, BoatBuilders, and Shipbreakersa. LICENSE FEES / RENEWAL

Shipbreaker P31,200.00Shipbuilding and Ship Repair (SBSR) A P31,200.00SBSR B P23,400.00SBSR C P15,600.00Afloat Repairers (AF)/SR C P6,000.00Boatbuilder P860.00

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b. Annual Shipyard Inspection Fees of registered firmShipbreaker P11,260.00SBSR A P11,260.00SBSR B P8,440.00SBSR C P5,660.00AF/SR C P4,840.00Boatbuilder P2,580.00

2. Issuance of approval for ShipyardDevelopment Fund (SDF) Disbursement

P4,680.00

3. Filing fee for processing of application forexemption under PD No. 1221

P4,680.00

4. Application for Authority to importcapital equipment, machinery, spare parts,life-saving, navigational equipment, steelplates, and other metal plates under RA 9295

1% of the pro-formainvoice value or

P10,000, whichever islower

5. Authority to sell, dispose, or transfer articlesimposed under RA 9295

P5,000.00

6. Application for Endorsement to BOI– For registration P410.00– For availability P1,560.00

7. Admeasurement/Re-admeasurement Fee– 3.00GT and below (applies to passenger

carrying vessels only)P390.00

– 3.01GT-14.99GT P470.00– 15.00GT-34.99GT P620.00– 35GT-99.99GT P1,170.00– 100GT-249.99GT P4,060.00– 250GT-499GT P5,460.00– 500GT & above P5,460.00 plus P4.00/GT

in excess of 500GT8. Approval of Vessel Plans P160.00 / section

Conversion/Alteration of Vessel 160.00 / section9. Authentication

– Loading Certificate P310.00/certificate– Stability Certificate P310.00/certificate– Grain Loading Booklet P22.00/page– Approval of Stability Calculation P22.00/page

10. Accreditation of Maritime Surveying Companies– Appointment as Loadline Assignor P7,800.00/3 years– Appointment as Inclining Experiment and

Stability CalculationP7,800.00/year

– Examination for Loadline Assignor P1,560.00/year– Renewal of Appointment P15,600.00

Loadline P7,800.00/yearInclining/Stability P3,900.00/year

PHILIPPINES


11. International Tonnage Measurement Certificate (ITC)– Below 50.00GT P390.00– 50GT to 99.99GT P780.00– 100GT to 249.99GT P1,560.00– 250GT to 499.99GT P2,340.00– 500GT to 999.99GT P3,120.00– 1,000GT to 1,499GT P3,900.00– 1,500GT & above P4,680.00

12. Supervision of Inclining Experiment andApproval of Stability Calculation– 50GT or less P470.00– Over 50GT to 500GT P470.00 þ P1.60/GT in

excess of 50GT– Above 50GT to 1,00GT P1,250.00 þ P1.60/GT

in excess of 500GT– Above 1,500GT P4,370.00 þ P1.50/GT

in excess of 1,500GT13. Vessel Inspection in compliance with

PD 1069P1,170.00

14. Issuance of Ship Construction Certificate P310.00/certificate15. Supervision Fee for Underwater Survey (MC 152)

499.99 and below P3,120.00500GT and above P4,680.00 or the

equivalent of the hullfees, whichever is

higher, provided thatthe actual travel

expense of theMARINA ship

inspector(s) shall beborne by the applicant

16. Re-issuance of Certificate P310.00/certificate17. Issuance of Authority to acquire vessel(s) for

scrappingpurposes (MC 162)a. Below 1000GT

Less than ten years old P7,800.00eleven–fourteen years old P11,700.00fifteen–twenty years old P15,600.00above twenty years old P21,840.00

b. 1000GT & aboveLess than ten years old P10,920.00eleven–fourteen years old P16,380.00fifteen–twenty years old P21,840.00above twenty years old P27,300.00

CASTILLO


18. Issuance of Authority to acquire floating docks (MC 162)a. Below 1000GT

Less than ten years old P7,800.00eleven–fourteen years old P11,700.00fifteen–twenty years old P15,600.00above twenty years old P21,840.00

b. 1000GT & aboveLess than ten years old P10,920.00eleven–fourteen years old P16,380.00fifteen–twenty years old P21,840.00above twenty years old P27,300.00

C. ON MARITIME SAFETY

1. Ship Survey/Inspection Fee (Domestic & International)a. If survey/inspection conducted within

the MCO/MRO workstation/location

Hull/Structural, LSA/FF Equip., &Navigational/Comm. System Sections

– 3.00GT and below– 3.01GT-14.99GT– 15.00GT-34.99GT P160.00– 35.00GT-99.99GT P260.00 þ P1.00/GT in

excess of 3GT– 100.00GT-249.99GT P460.00 þ P1.00/GT in



excess of 100GT– 1000.00GT-1499.99GT P1,300.00 þ P1.00/GT in




excess of 1500GT– 5000.00GT and above P3,900.00 þ P1.00/GT in

excess of 2000GTP5,200 þ P1.00/GT in

excess of 3000GT

PHILIPPINES


For Liquid Cargo P7,200.00þP1.00/GT inexcess of P5000 GT

Machinery and Electrical System Sections 1.5 times the rate of theabove fees

– 15KW and below– Over 15 KW– 100KW and below P65.00– Over 100KW P65.00 þ P4.00/KW in

excess of 15KWP195.00

Boilers including Donkey Boilers P195.00 þ P3.00/KW inexcess of 100KW

– 3,000 sq. ft. of heating surface and below– Over 3,000 sq. ft. of heating surface P110.00

Air Compressor P110.00 þ P5.00/sq. ft.In excess of 3,000 sq. ft.

Refrigeration or Machinery & Chambers P95.00

b. Additional charges for Survey/Inspectionwithin jurisdiction of the Central Office orMRO (per inspector per inspection)

P95.00

– Within 10 km radius from workstation

P500.00

– Beyond 10 km P500.00 þ P50/km inexcess of 10 km

2. Processing Fee for the Thickness Gauging ofFishing Vessels prior to Registration

P8,580.00

3. Lay-up of Vessels (MC 156)– 50,000 DWT and below In peso equivalent of

USD 91/day– Above 50,000 DWT to 150,000 DWT In peso equivalent of

USD 104/day– Above 150,000 DWT In peso equivalent of

USD 117/day4. Issuance/Re-issuance of CPR P310.00

– 3GT and below P310.00

CASTILLO


– 3.01GT to 14.99GT P620.00– 15GT to 34.99GT P940.00 þ P8.00/GT in

excess of 15GT– 35GT to 99.99GT P1,100.00 þ P7.00/GT in

excess of 35GT– 100GT to 249.99GT P1,500 þ P5.00/GT in


excess of 250GT– 500GT and above P2,980.00 þ P3.00/GT in

excess of 500GT5. Issuance/Re-issuance of CO P310.00

– 3GT and below P310.00– 3.01GT to 14.99GT P620.00– 15GT to 34.99GT P940.00 þ P8.00/GT in


excess of 35GT– 100GT to 249.99GT P1,500 þ P5.00/GT in


excess of 250GT– 500GT and above P2,980.00 þ P3.00/GT in

excess of 500GT6. Pleasure Yacht Registration

a. Powered– 15GT and below P4,680.00– 15GT to 49.99GT P6,240.00– 50GT to 99.99GT P7,800.00– 100GT and above P9,360.00

b. Without Power– 15GT and below P160.00– 15GT to 49.99GT P310.00– 50GT to 99.99GT P470.00– 100GT and above P620.00

c. With Sail and Emergency Power– 15GT and below P2,340.00– 15GT to 49.99GT P3,900.00– 50GT to 99.99GT P5,460.00– 100GT and above P7,020.00

7. PO/SCI3GT & belowPO P160.00SCI P230.00

PHILIPPINES


8. Annotation of Ship Mortgages– below P5,000.00 P2,500.00

P2,500.00 þ P0.72/P1,000 in excessof P5,000.00

– P5,000.00-P25,000.00– Over P25,000.00 P3,000.00 þ P0.60/

P1,000.00 in excess ofP25,000.00

9. Special Permit to Navigate (SPN) forDrydocking/Conduction Purposes

P620.00

10. Dispensation Permit for Seafarers on board vesselsoperating in the domestic trade (MC 138)– New Issuance P7,800.00– First Renewal P12,480.00– Second Renewal P15,600.00

11. Issuance of Certificate of Exemption forFishing Vessel (from Safety of Life at Sea(SOLAS))

P310.00

12. Certificate of Deletion from Philippine RegistryDomestic P1,560.00

13. Record of Changesa. For Registered Vessels

– Deed of Sale/Construction Certificate P470.00– Deed of Sale/Construction Certificate P470.00– Change of Trading Status P310.00– Change of Service Type P310.00– Change of Engine P310.00– Change of Homeport

Ships 35GT and above P1,300.00Ships below 35GT P650.00

– Change of name of VesselSteel-Hulled Ships P2,600.00Aluminum-Hulled Ships or Fiberglass-Hulled Ships or combination of both orany other type of hull

P2,600.00

Wooden-Hulled ShipsShips 35GT and above P650.00Ships below 35GT P650.00

b. Change of OwnershipShips 35GT and above P1,300.00Ships below 35GT P650.00

c. Change of company name P520.00d. For undocumented vessels

Change of Homeport P160.00

CASTILLO


Change of name of vessel P200.00Deed of Sale/Change of Ownership P160.00Change of Trading Status P200.00Change of Engine P200.00

14. CN1.00GT or less P160.001.00GT to 3.00GT P160.003.00GT to 4.99GT P230.005.00GT to 9.99GT P310.0010.00GT to 14.99GT P390.00

15. Ship Safety Certificates (rates for ship safetycertificates shall be added

to the correspondinginspection fee)

a. Passenger Ship Safety Certificates P300.00b. Cargo Ship Safety Certificate P1,500.00c. Cargo Ship Safety Construction Certificate P1,500.00d. Cargo Ship Safety Equipment Certificate P1,500.00e. High-Speed Craft Safety Certificate P300.00f. Exemption Certificate (P/C) P300.00/P1,500.00g. Fishing Vessel Safety Certificate P1,500.00h. Certificate of Fitness P1,500.00i. Re-issuance of Certificates P250.00j. Annual Endorsement of Certificates P250.00

16. Registration of Engine and Deck Logbook/Roll Book and other books

P310.00/book

17. Accreditation of Manufacturer of SOLASAppliances and Equipment

P9,360.00

18. Special Permit to Load Dangerous Cargoes P260.0019. Other certification and Documentation Fees P310.00

TRADING LICENSES

20. Coastwise License (CWL)– Power-Driven vessels P18.00/NT– Non-power-driven (barges, etc.) P16.00/NT

21. BRL– Power-driven vessels P16.00/NT– Non-power-driven (barges, etc.) P13.00/NT

22. Pleasure Yacht license (This is separatefrom the energy tax collected annuallyon motorized speedboats, yachts, launches,and other watercraft used for pleasure andrecreation, whether operated for profit

P310.00

PHILIPPINES


or non-profit pursuant toPD 845)

23. MBOL P310.0024. Energy Tax

– More than five (5) meters P3,120.00– More than 5 metres but not more than

15 metresP7,800.00

– More than 15 metres but not more than25 metres

P12,480.00

– More than 25 metres but not more than35 metres

P17,160.00

– More than 35 to 55 metres P26,520.00– More than 55 metres P40,560.00

25. Surcharge for the late renewal of expiredcertificates– Certificate of Inspection Total fees þ 50%– SCI Total fees þ 50%– Short International Voyage Total fees þ 50%– Manning Certificate Total fees þ 50%– Exemption Certificate Total fees þ 50%– PO Total fees þ 50%– BRL Total fees þ 50%– CWL Total fees þ 50%– Pleasure Yacht License Total fees þ 50%– Dispensation Permit Total fees þ 50%– Motor Boat Operator’s License Total fees þ 50%– Loadline Certificate Total fees þ 50%

26. Implementation of International SafetyManagement ( ISM) Code in DomesticShipping (MC 143)

P6,240.00 / document

a. Full-Term Document of Compliance(DOC) issued by the MARINA/InterimDOC issued by MARINA

P6,240.00 / certificate

b. Full-Term Safety Management certificate(SMC)/Interim SMC issued by MARINA

c. Audit (conducted by MARINA)

Company

Category I – Small (with 20 employees andbelow)

P24,960.00 percomplete Audit

Category II – Medium (between 21 and50 employees)


Category III – Large (more than50 employees)


CASTILLO


Ship

Category I P24,960.00 percomplete Audit

– Oil tankers, gas carriers, bulk carriers,and other cargo ships of 500GT andabove; and

– Passenger ships and high-speed craftcarrying less than 300 passengers

Category II P24,960.00 percomplete Audit

– Passenger ships and high-speedcraft carrying 300 up to1,499 passengers; and

– Chemical tankersCategory III P37,440.00 per

complete Audit– Passenger ships carrying

1,500 passengers and aboved. Additional charges for audit

conducted outside work stationof the Auditor(s)

P3,900.00 /day þamount of air fare

ticket (economy) perAuditor

27. ISM Certification (applicable only to thosewho will avail of the MARINA audit) (MC 146)a. DOC / Interim DOC P6,240.00 / documentb. SMC / Interim SMCc. Verification/Audit P6,240.00 / document

Company

Category I – Small (with 20 employeesand below)Category II – Medium (between 21 and50 employees)

P24,960.00

Category III – Large (more than 50 employees) P37,440.00

Ship

Category I P37,440.00– Oil tankers, gas carriers, bulk carriers,

and other cargo ships of 500GT andabove; and

P24,960.00

– Passenger ships and high-speedcraft carrying less than300 passengers

PHILIPPINES


Category II– Passenger ships and high-speed craft

carrying 300 up to 1,499 passengers;and

P24,960.00

– Chemical tankersCategory III

– Passenger ships carrying1,500 passengers and above

P37,440.00

28. Adoption of NSM Code in Domestic Shippinga. NSM Manual P1,560.00b. Certificates

– Interim NSM DOC P1,560.00– Full-term NSM DOC P4,680.00– Short-term NSM SMC P1,560.00– Interim NSM SMC P1,560.00– Full-term NSM SMC P4,680.00

c. Certification Process

For companies operating ships 250GT and above

– Document Review P4,680.00Within Working Station

– Initial Visit (for new company)Within Working Station P1,560.00Outside Working Station P54,600.00Central Office/MRO P46,800.00

– Company AuditWithin Working Station P15,600.00Outside Working Station P70,200.00Central Office/MRO P62,400.00

– Ship AuditWithin Working Station P12,480.00Outside Working Station P70,200.00Central Office/MRO P62,400.00

For companies operating ships 150 to 249.99 GT

– Document ReviewWithin Working Station

– Initial Visit (for new company)Within Working Station P3,510.00Outside Working StationCentral Office/MRO

– Company AuditWithin Working Station P1,170.00

CASTILLO


Outside Working Station P40,950.00Central Office/MRO P35,100.00

– Ship AuditWithin Working Station P11,700.00Outside Working Station P58,500.00Central Office/MRO P52,650.00

For companies operating ships 50 to 149.99 GT P9,360.00

– Document Review P52,650.00Within Working Station P46,800.00

– Initial Visit (for new company)Within Working StationOutside Working StationCentral Office/MRO

– Company Audit P2,340.00Within Working StationOutside Working StationCentral Office/MRO P780.00

– Ship Audit P27,300.00Within Working Station P23,400.00Outside Working StationCentral Office/MRO P7,800.00

For companies operating ships 15 to 49.99 GT P39,000.00

– Document Review P34,320.00Within Working Station

– Initial Visit (for new company) P6,240.00Within Working Station P35,100.00Outside Working Station P31,200.00Central Office/MRO

– Company AuditWithin Working StationOutside Working StationCentral Office/MRO P1,400.00

– Ship AuditWithin Working Station P470.00Outside Working Station P16,380.00Central Office/MRO

For companies operating ships less than 15GT

– Document Review P14,040.00Within Working Station P24,180.00

PHILIPPINES


– Initial Visit (for new company) P21,060.00Within Working StationOutside Working Station P3,740.00Central Office/MRO P21,060.00

– Company AuditWithin Working StationOutside Working StationCentral Office/MRO

– Ship AuditWithin Working StationOutside Working Station P470.00Central Office/MRO

P160.00P5,460.00P4,680.00P1,560.00P7,800.00P7,020.00P1,250.00P7,020.00P6,240.00

29. Issuance of Certificate of Accreditationto Classification Societies and Entitiesfor the purpose of Classification ofships in the domestic trade(MC 165)

P39,000.00 valid forthree years

30. Minimum Safe Manning Certificate(MC 179)a. Issuance / Renewal of Minimum Safe

Manning CertificateOver 1,600GT P1,950.00/shipOver 1,000GT to 1,600GT P1,630.00/shipOver 500GT to 1,000GT P1,300.00/shipOver 250GT to 500GT P980.00/shipOver 100GT to 250GT P650.00/shipOver 35GT to 100GT P330.00/ship35GT and below P130.00/ship

b. Re-issuance of Minimum Safe ManningCertificate

P130.00/ship

31. Cancellation of RegisteredMortgages

P1,560.00

32. Expedite Processing of Applications Additional 50% ofexisting fees

CASTILLO


D. ON FRANCHISING

1. Application for issuance of Company CPCa. New/Renewal of Company CPC

– Steel-hulled vesselsNew

a. Liner (Passenger & Cargo/Purely Cargo) P11.00/GT orminimum of P7,800/

vesselb. Tramp P12.50/GT or

minimum of P9,360/vessel

Renewala. Liner (Passenger & Cargo/Purely Cargo) P10.00/GT or

minimum of P7,000/vessel

b. Tramp P11.50/GT orminimum of P8,580/

vessel– Aluminum-Hulled/Fiber

Glass-Hulled Vessels orCombination of Both orAny other Type of Hull(for Fastcraft Vessels)

P11.00/GT orminimum of P7,800/

vessel

– Wooden-Hulled VesselsFor Vessels 35GT and Less P4.50/GT or minimum

of P1,560/vesselFor Vessels above 35GT up to500GT

P6.50/GT or minimumof P3,120/vessel

For Vessels above 500GT P8.00/GT or minimumof P4,680/vessel

b. Amendment of Company CPC– Permanent Addition or Deletion

of a Route/Port/Linka. Steel-Hulled Vessels P4.50/GT per route/

port/link or minimumof P4,680 per

applicationb. Aluminum-Hulled or Fiber Glass-

Hulled Vessels or Combination ofBoth, or Any other type of Hull

P4.50/GT per route/port/link or minimum

of P4,680 perapplication

PHILIPPINES


c. Wooden-Hulled VesselsFor vessels 35GT and above P3.00/GT per route/

port/link or minimumof P2,340 per

applicationFor vessels below 35GT P3.20/GT per route/

port/ink or minimumof P780 per application

– Permanent Addition/Reduction/Replacement of Ship/Fleeta. Steel-Hulled Vessels P4,680/vesselb. Aluminum-Hulled or Fiber

Glass-Hulled Vessels orCombination of Both, or Any Typeof Hull

P1,560/vessel

c. Wooden-Hulled Vessels– For vessels 35GT and above P780/vessel– For vessels below 35GT P3,900.00– Change in the Legal Personality of the

Grantee of the CPCP1,560.00

Change in the Name of the Entity/Corporation/Partnership/Cooperative

– Change of vessel namea. Steel-Hulled Vessels P2,340/vesselb. Aluminum-Hulled or Fiber Glass-

Hulled Vessels or Combination ofBoth, or Any Type of Hull

P2,340/vessel

c. Wooden-Hulled Vessels– For vessels 35GT and above P1,560/vessel– For vessels below 35GT P780/vessel

2. Special Permit– Steel-Hulled Vessels P2,340.00/vessel– Aluminum-Hulled or Fiber Glass-Hulled

vessels or combination of both or anyother type of hull

P2,340.00/vessel

– Wooden-Hulled Vessels P1,500.00/vessel– for vessels 35GT and above P625.00/vessel– for vessels below 35GT P3,120.00/vessel– SP outside the basic/original application has

been applied, or based on the amendedapplication (e.g., Amendment of time orday of schedules); or based on the amendedapplication (e.g., amendment of routes)

P3,900.00 per vessel perextension

– SP for peak season/fiesta/festival or anyother special occasion

P3,120.00/vessel

CASTILLO


– SP outside the recent amended applicationwhether amendments of time/days ofschedules or routes

P4,320.00/vessel

– SP under PD 474– All other types of SP not included above

3. Filing of Complaints Regarding Any MatterInvolving Violations of the Provisions of RA 9295or the Implementing Rules and Regulations (IRR)– For Vessels 500GT and Above P1,560.00/vessel– For Vessels Less than 500GT P3,120.00/vessel

4. Filing of Motion for Reconsideration (MR)on the Order/Decision/Ruling

P3,120.00 filing feeP780 filing fee

5. Filing of Administrative Appeal on theOrder/Decision/Ruling Relative to the CPCApplication

P1,000.00

6. Penalty of Late Filing/Surcharge for theRenewal of Company CPC

P1,000.00

– Vessels below 35GT P160/day of operationbut not to exceed

P7,800.00– Vessels below 35GT to 100GT P310/day of operation

but not to exceedP15,600.00

– Vessels 101GT to 500GT P470/day of operationbut not to exceed

P31,200.00– Vessels above 500G P780/day of operation

but not to exceedP39,000

E. ON PERMANENT IMPLEMENTATION OF THE PRO-POORVESSEL FEES FOR THE FIRST INSTANCE COVERING THEENUMERATION EXCLUSIVELY

On Permanent Implementation of the Pro-Poor Vessel Fees(section MC 172)

1. Below 3 GT Fishing Boats P250.00CNPOBuilder CertificateVessel Name Clearance

2. Below 3 GT Passenger/Cargo vessels tocover the issuance of:

P500.00

Certificate of Ownership (CO)

PHILIPPINES


CVRAdmeasurementSCIInspection FeeBRLCPC/PA/SP filing feeAccreditation of Domestic ShippingEnterprises/EntitiesVessel Name Clearance

3. 3-15 GT Passenger/Cargo Vessels to coverthe issuance of:

P750.00

COCVRAdmeasurementBuilder CertificateRelevant Safety CertificatesBRLMarine Diesel Mechanic/Boat Captain (as applicable)Survey Inspection FeePlans ApprovalCPC/PA/SP filing fee (if applicable)Accreditation of Domestic ShippingEnterprises/EntitiesVessel Name Clearance

4. Boatbuilders of Vessels 15 GT and belowto cover the issuance of: License Certificate

P500.00

F. MARITIME LEGAL AFFAIRS

1. Endorsements P390.00Securities and Exchange Commission(SEC)

P390.00

POEA/DOLE P1,560.00DOF P390.00Other government agencies P160.00

2. Certification

G. ON MANAGEMENT INFORMATION SYSTEMS

1. Vessel Name Clearance P80.00/vessel2. Diskette copy of existing database P160.00/topic

(including cost ofdiskette)

CASTILLO


H. ON ENFORCEMENT FUNCTION

1. Filing Fee for adoption of deregulatedpassenger rates for Reclining SeatAccommodation

P4,320.00/ship

2. Issuance or re-issuance of COC P310.003. Inspection Fees

a. Within Metro Manila or Area of Jurisdictionfor Regional Offices– 35 to 100GRT P2,600.00– Above 100 to 250GRT P4,680.00– Above 250 to 350GRT P6,240.00– Above 350 to 500GRT P7,800.00– 500 to 1000GRT P10,920.00– Above 1000 to 5000GRT P12,480.00– Above 5000GRT P15,600.00

b. For inspection outside Metro Manila orArea of Jurisdiction for Regional Offices– 35 to 100GRT P6,240.00– Above 100 to 250GRT P7,800.00– Above 250 to 350GRT P9,360.00– Above 350 to 500GRT P10,920.00– Above 500 to 1000GRT P12,480.00– Above 1000 to 5000GRT P15,600.00– Above 5000GRT P20,280.00

4. Filing of marine protest/incidence report P390.00

I. GENERAL

Certification of all types of documents P250.00/certification

The schedule of fees imposed by the MARINA for the overseas shippingsector is embodied in MARINA MC No. 2006-002 as amended byMARINA MC No. 2008-06, as follows:

OVERSEAS SHIPPING

1. Vessel Charter/Extension of CharterPeriod/Notation of BBC Contract

P24,800.00/vessel forthe first three years and

additionalP5,300.00 for every

year thereafter

PHILIPPINES


2. Amendment of any provision of chartercontract under PD 760/866/1711 and EONo. 438

P1,650.00/ship

3. Extension of validity period ofMARINA approval on importation/bareboatchartering projects

P2,450.00/month

4. Change of original registry of BBC ships P24,800.00/ship5. CPR/CO P2,650.00 þ P1.15/GT

in excess of500 GT

6. Extension of vessel’s CPR for less thanone year

P24,800.00/ship

7. Re-issuance of CPR/Full-term CPR P1,650.008. Manning Certificate

– Initial issuance/reissuance upon requestof company/for SP in the (overseas trade)

P1,650.00

– Full term P8,050.00– Reissuance for compliance with new

International Maritime Organization(IMO) Regulations

P600.00

9. Employment of Expatriate Officer under PD1711/Supernumenary

P5,300.00/supernumerary

10. SP for temporary utilization of domestic shipsin overseas trade/operation– Duration of SP

TRAMPING OPERATION

– Three months or less P8,050.00– Over three months but not more than six months P16,100.00– Over six months P23,850.00

LINER OPERATION

– Six months but not to exceed one year P39,700.00– Over six months but not to exceed

one yearP66,150.00

11. Amendment of SP P600.00/application

12. Accreditation of Overseas ShippingCompanies under MC No. 181

P10,350.00

13. Re-issuance of Certificate of Accreditation dueto amendment during the validity of Certificate

P2,300.00

CASTILLO


14. Accreditation under MC No. 186 based onthe following categories:– Single proprietorship P6,350.00– Partnership/Corporation P9,200.00– Cooperatives P9,200.00– Amendment of Certificate P2,300.00– Change of company name P2,300.00

15. Change of Vessel Name P600.0016. Accreditation under MO No. 6 $190/ship17. Importation/purchase of vessel for overseas use P8,050.00/ship18. Authority to sell ships from Filipinos to

foreign nationalsP4,050.00/ship

19. Deletion from Philippine Registry P1,650.0020. Re-filing of application for deletion of vessel

from the Philippine registryP1,650.00/application

21. Endorsement to authorized agent banks AAB’sof the Monetary authority for foreign exchangerequirements of Shipping companies (section6.01(a) R & R of RA No. 7471)

P780.00

22. Endorsement to the Secretary of Finance foravailability of Import Duties & Taxes (section6.02(d) of R&R of RA No. 7471)– Vessel importation P3,120.00– Spare parts P780.00

23. Endorsement to BOI for registration P780.0024. Endorsement to the Secretary of Finance for

availment of supplier’s tax credit (section6.02(d) R & R of RA No. 7471)

P780.00

25. Endorsement to the Bureau of InternalRevenue (BIR) for issuance of Certificateof Income Tax Exemption (section 6.02(e)R & R of RA No. 7471 and RA 9301)

P780.00

26. Registration of Engine and Deck Logbook/Rollbook and Other books

P300.00/quarter

27. Other Ship’s Books P300.00/book28. Dispensation Permit P1,650.0029. Annotation of Ship Mortgage

– P5,000.00-P25,000.00 P550.00 þ P0.60/P1,000 in excess of

P5,000.00– Over P25,000.00 P1,650.00 þ P0.40/

P1,000 in excess ofP25,000.00

30. Letter authorization to recognizeorganizations for statutory/ISM certifications

P1,750.00

PHILIPPINES


31. Reservation of vessel’s name P200.00/ship/month32. Registration of Cautionary Notice of

MortgagesP23,850.00/ship

33. Change of officer and stockholders accreditedoverseas shipping companies

P1,000.00

34. Permanent conversion of vessels fromdomestic to overseas

P8,050.00

35. Application for the Issuance of Certificate forOil Pollution Damage

P1,650.00

36. Issuance of Continuous Synopsis Record(CSR):– Initial issuance P1,650.00– Re-issuance due to change in the CSR P1,650.00

37. Certified True Copy P70.00/document38. Letter Approval for the Termination of

Assignment of Bank Deposit/Withdrawal ofSurety Bond

P300.00/ship

39. Letter of consent for the registration of theship under Philippine Flag

P1,650.00

40. Exemption Certificate P1,650.0041. Other Certifications P250.00/certification42. Expedite Processing of Applications except

issuance of Seafarer’s Identification andRecord Book (SIRB)

Additional 100%on processing/application fee

The fees payable to MARINA for registry are based on gross tonnage, as follows:

PERMIT TO OPERATE/SPECIAL CERTIFICATE OF INSPECTIONFOR DOMESTIC VOYAGE

3 GT and belowa. PO P160.00b. SCI 230.00

The applicant shall pay the following fees to MARINA on the bareboat ofvessels under PD760 as amended and MARINA MC No. 2006-002:

a. BBC – P21,550.00 for the first three years plus P4,600.00 for every yearthereafter:

b. CPRi. initial (good for three months) – P2,300.00 for the first 500 GT

plus P1.00 per GT in excess of 500GTii. Full Term – P1,400.00iii. Re-issuance – P1,400.00

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2.6. Errors in the Register: Legal effect, correction, and so on

Errors made in recording documents shall be rectified in the following manner:

(1) Slight errors not affecting the substance of the document, such as mis-spelled words, shall be corrected by the responsible officer of theMARINA by writing the correction above the errors and by affixinghis initials beside the correct entry or notation.

(2) Any mistake which might affect the meaning of the documents may becorrected upon petition or upon notice to the party concerned by rewrit-ing the entire line or lines right below where the error occurred. Saidcorrection, together with a statement of the circumstances, shall be signedby the officer-in-charge of the record.

(3) Errors made in copying shall not be erased. Instead, all required changesshall be made as directed above. (Regulation XV/9, PMMRR.)

3. DOCUMENTATION REQUIRED FOR REGISTRATION

3.1. Generally

MARINA MC No. 90, provides for the following requirements which mustbe complied with prior to registration of a vessel, if applicable:

(1) Existing vessels:(i) Plan approval

(ii) Admeasurement(iii) Presentation of photocopies of valid trading certificates

(2) New buildings:(i) MARINA approval to acquire vessel

(ii) Approval of complete plans of hull and machineries(iii) Authority issued to a classification society to inspect/supervise the

construction of the vessel.

3.2. Differences between registration for a new building (first registration) and a shippreviously registered in another country

Ships constructed and acquired abroad shall, before being brought to thePhilippines, secure a PCPR. Application therefore shall be filed with theMARINA together with the following documents:

(a) Articles of Incorporation duly certified by the Philippine SEC if ownedby a Company or Corporation.

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(b) Board Resolution authorizing the person to represent the Corporation orLetter of Authority.

(c) Affidavit of citizenship of the corporation or individual owner.(d) Memorandum of Agreement of the transfer of ownership of the ship.(e) Particulars of the ship.(f) Application for Assignment of Name.(g) Application for Official Number.(h) Deletion Certificate issued by the country of the vessel’s previous

registration.

If the application is found to be in order, the MARINA shall endorse it tothe Department of Foreign Affairs with the request that it be transmitted to thePhilippine Embassy/Consulate nearest to where the vessel is located so that thecertificate can be issued for conduction purposes.

Within fifteen days after arrival of the ship in the Philippines, the master,owner, or agent of the ship shall apply to MARINA. The following documentsare required:

(a) PCPR.(b) Bill of Sale or Builder’s Certificate.(c) Protocol of Delivery and Acceptance.(d) Protocol of Inventory of the Ship.(e) Certificate of Admeasurement, including Calculation Sheets for tonnage

measurement, as performed by the official admeasure, of the countrywhere the ship is built or acquired.

(f) Provisional Loadline Certificate issued by the authorized ClassificationSociety under whose rules the vessel is constructed or acquired.

(g) Certificate of Inspection or equivalent Certificate pursuant to the SOLAS1960 Convention issued by the government of the country where theship was built or acquired.

(h) Inclining test experiment with calculations and trim and stability calcula-tions for all service loading conditions.

(i) Ship Safety Radio Telephony Certificate (if applicable).(j) Ship Safety Radio Telegraphy Certificate.(k) All documents from sub-paragraphs (a) through (d) executed outside

the Philippines will have to be authenticated by the Philippine Con-sulate. Provided, however, that sub-paragraph (h) may be duly authen-ticated at a later date if it is not available at the time of purchase oracquisition.

(l) Consular invoice.(m) Permit to deliver imported goods (Philippine Bureau of Customs formal

entry).(n) Documents mentioned above as applicable.(o) Deletion Certificate issued by the country of the vessel’s previous regis-

tration in the event of previous registration in another country.

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3.3. When vessel was sold in an enforced sale procedure in another country

The Order for Sale of the foreign court should be presented, identifying thepurchaser, as well as notarised evidence by affidavit that by the law of thatforeign country the sale by the court operated so as to erase any liens or encum-brances existing prior to the sale. Thereafter, said documents should be authen-ticated before the Philippine Consulate.

4. DEREGISTRATION (CLOSING THE REGISTER)

4.1. On a sale

When a ship of domestic ownership is sold or transferred to a foreign national,notice must be given to the MARINA which thereafter closes the Registry anddeletes the CPR of the vessel. The seller/transferor must cause the deletion of theship from the Philippine Port of Registry within fifteen days from the transfer.

4.2. After an actual or constructive total loss

In the event that the ship of domestic ownership is deleted or de-registered fromthe Philippine Registry where the vessel suffers actual or constructive total loss.

4.3. Is mortgagee’s consent required?

If registered mortgagees do not consent to the discharge of all mortgages, anyunsatisfied mortgages will remain on the register until discharged.

4.4. Are permissions from governmental agencies required?

Provided that the proper notice is given confirming the reason for closing theregister, no governmental permission is required, provided all fees and chargeshave been paid and all radiotelegraphy fees of the Philippine National Tele-communications have been paid. In the event of sale of vessels owned byPhilippine nationals to foreign-owned or foreign-controlled enterprises,MARINA approval is required (section 12(h), PD 474).

5. LEGAL EFFECT OF REGISTRATION UNDER CIVIL LAW OF THE COUNTRY

Although the person in whose name a vessel is registered has legal titlethereto, such registration is not always conclusive as to ownership over the

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vessel against the real owner. The circumstances of each case will determinewhether registration is conclusive or not. It should, however, be rememberedthat the registry authorities conduct investigations before registering avessel, considering that no application for a CPR shall be approved untilthe MARINA is satisfied from an inspection of the vessel that it is engagedor destined to be engaged in legitimate trade and that it is of domesticownership.

6. RATIFICATION OF OR ADHERENCE TO THE INTERNATIONAL

CONVENTIONS FOR THE UNIFICATION OF CERTAIN RULES

RELATING TO MARITIME LIENS AND MORTGAGES OF

1926 AND/OR 1967

The Philippines has not ratified or incorporated either of the Conventionsinto its national law.

7. FLAGGING IN OF VESSELS WHICH REMAIN REGISTERED IN ANOTHER COUNTRY

As previously mentioned, under PD 760, as amended, any foreign-registeredvessel bareboat chartered to a Philippine national for at least one year mayqualify for registration under the Flag of the Philippines without losing herpermanent registration under the foreign flag.

PD 760, as amended by PD 866 and PD 1711, reads:

Section 1. Any provision of law, decree, executive order, or rules and reg-ulations to the contrary notwithstanding, any foreign-owned vessel undercharter or lease to a Philippine National, as the term is defined in Section3 of Presidential Decree No. 474, may be issued a Temporary Certificate ofPhilippine Registry by the Maritime Industry Authority: Provided, That thesaid charter or lease (1) has the prior written approval of the MaritimeIndustry Authority, (2) shall be valid and effective for a period of notless than one (1) year: Provided, Further, That the operation of the vesselshall be entirely in the hands of Philippine nationals and free from anyparticipation or interference from alien owner, except insofar as such actionshall be to directly protect his rights as owner thereof, provided, finally, thatthe registered vessel shall be manned completely by a Filipino crew exceptin the case of specialised vessels and subject to rules and regulationsMARINA may prescribe in relation thereto. (As amended by EONo. 125/125-A, Series 1987.)

The effectivity of any charter or lease contract entered into under the saidDecree is hereby extended indefinitely, unless otherwise revoked by thePresident of the Republic of the Philippines.

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Issued in 1975, PD 760 allows the temporary registration of foreign-ownedships under charter or lease to Filipino nationals for use in the country’s coast-wise trade for a period of not less than five years.

As a way to expand the domestic fleet without the capital-intensive method ofoutright purchase, domestic shipping firms were permitted to charter ships untilthe year 1990. PD 866, issued six months later, amended PD 760 by expandingits scope to include the charter of foreign-owned ships to be used for overseasshipping operations. Because it would be costly to charter for a period of fiveyears, the lease period was reduced to only one year during which the ship can betemporarily registered under the Philippine flag.

In 1980, the two decrees were further amended by PD 1711 which allowed thechartering of specialized ocean-going ships, lengthened the duration of the twoprevious decrees’ effectiveness until 1999, and transferred the issuance ofTemporary Certificate of Philippine Registry (TCPR) to MARINA. EONo. 438, S.1997, extended the chartering system until 2009. EO No. 667,S.2007, extended the chartering system indefinitely unless revoked by the Pres-ident of the Republic of the Philippines.

These decrees have been welcomed by Filipino shipowners since acquiringships through importation under lease-purchase agreements or outright pur-chases has become prohibitively expensive due to the rising cost of moneyand lack of foreign exchange in the Philippines.

7.1. Permissions required, by whom?

Approval by the MARINA is necessary for the flagging-in of vessels. Thebareboat charterer filing the application for the flagging-in of the vessel withthe MARINA should be a Philippine shipping company, firm and entity prin-cipally engaged in overseas shipping and complying with MC 181 and 182, bothof 22 January 2003.

7.2. Time for which Permission can be granted;Possibilities of Prolongation

PD 760, as amended, expressly provides that the charter must have a term of atleast one year which may be extended indefinitely unless revoked by the Pres-ident of the Republic of the Philippines, per EO No. 667, Series 2007.

7.3. Conditions to be fulfilled to receive permission

MARINA issued MC No. 182 on the conditions governing applications forthe flagging-in of vessels, as follows:

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A. Only companies which have complied with the following require-ments may bareboat charter ships under PD 760, as amended:

A1. The company is accredited under MC No. 181, provided that suchaccreditation shall be maintained for the period that it has a bare-boat chartered ship.

A2. Ship-owning companies must have a paid-up capital of Seven Mil-lion Pesos (P7 M) and companies without owned ships must have apaid-up capital of Ten Million Pesos (P10 M);

A3. The company shall have the following management profile:a. The Chief Executive and Chief Operating Officer (but if he is

one and the same, the next ranking Operating Officer) shall be acitizen and resident of the Philippines; and

b. Two (2) principal officers of the company shall have at least five(5) years experience in ship management, shipping operationsand/or chartering.

B. A ship shall be registered under this Circular for a period of not lessthan one (1) year.

C. Extension of the registration of the ship for less than one (1) year forthe purpose of finalizing documentation for the extension of the bareboatcharter party or the eventual deletion of the ship from the Philippine Reg-istry shall be allowed for a period not to exceed ninety days, provided thatthe registration shall be under the same company.

D. If the bareboat charter party is pre-terminated within one (1) yearfrom thedate of delivery of the ship, the charterer shall be liable to pay theMARINA as penalty the amount equivalent to six (6) months of withhold-ing tax or the balance of the withholding taxes due for the whole year,whichever is higher. For purposes of this provision, a ship which has con-tinuously been registered for more than one (1) year under the Philippineflag under the same group of companies shall be deemed to have compliedwith Regulation V.2 hereof.

E. Any change in the terms and conditions of the charter party shall beapproved by the Administration.

F. Ships registered under this Circular shall be completely manned byFilipino crew except in cases as may be determined by the Administration.For this purpose, Filipino crew onboard Philippine-registered ships shall becovered by prescribed Shipping Articles which shall be submitted for nota-tion by the Administration.

G. A Philippine-registered ship may, under circumstances to be deter-mined by the Administration, have on board supernumeraries, providedthat they shall not perform any of the functions of the crew nor interferewith the operation/management of the ship.

H. Crew onboard Philippine-registered ships are required to be certifiedin accordance with the International Convention on Standards of Train-ing, Certification and Watchkeeping for Seafarers, 1978 as amended.

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I. Ships registered under this Circular shall, when calling for the first timeat a Philippine port, be inspected by authorized MARINA surveyors.

J. All ships registered under this Circular must be class-maintained by aninternationally recognized classification society. Any change in the classi-fication of a Philippine-registered ship shall be immediately communicatedto the Administration.

K. Philippine-registered ships shall comply with the requirements of theInternational Safety Management (ISM) Code for the safe operation ofships and for pollution prevention.

L. Companies and ships covered by this Circular shall at all times com-ply with national rules and regulations as well as with international con-ventions, codes and standards on safety and marine environmentalprotection.

M. The bareboat charterer shall ensure that payment of the 4.5% with-holding tax on gross charter hire is remitted to the Bureau of InternalRevenue.

N. Companies with bareboat chartered ships shall deposit, in favor of theMARINA, with any reputable commercial bank the amount equivalent toOne Hundred Thousand Pesos (P100,000.00) per ship to answer for thepayment of the 4.5% withholding tax, fines and penalties due the govern-ment in the event that the company fails to settle the amount due upondeletion of the ship from the Philippine Registry. In addition, companiesshall also post a surety bond per ship in an amount equivalent to the cashbond. After the deletion of the ship from the Philippine Register of Ships,the amount of (P100,000.00) may be withdrawn, provided that proof ofpayment of all taxes/penalties due to the government by reason of theregistration of the ship under the Philippine flag had been submitted.Ship-owning companies shall be exempted from this requirement fortheir bareboat chartered ships.

O. All ships registered under this Circular shall not be deleted from thePhilippine Registry or reverted to its foreign flag or registry without theprior approval of the Administration.

P. The company shall comply with all laws, rules and regulations pertain-ing to Philippine flag ships.

7.4. Documents required

(1) The following documents shall be submitted upon filing of anapplication:(a) Letter of Intent.(b) Duly signed BBC Contract (with names printed below the signatures),

provided that the document, duly notarised in the State where it was

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executed and authenticated by the Philippine Embassy/Consulateconcerned, shall be submitted within sixty days from approval ofthe application.

(c) Copy of a certificate of Deletion or Suspension of the original registryor consent to the BBC registration in the Philippines by the State oforiginal registry, provided that the original copy of the document shallbe submitted within thirty days from approval of the application.

(d) Copy of certificate of Good Standing of the registered owners recentlyissued by the State of Registry, provided that the original copy of thedocument shall be submitted within thirty days from approval of theapplication.

(e) Power of Attorney/Board Resolution authorizing the signatory to theBBC party to act as such on behalf of the registered owners, providedthat the document, duly notarised in the State where it was executedand authenticated by the Philippine Embassy/Consulate concerned,shall be submitted within sixty days from approval of the application.

(f) Copy of the ship’s subsisting certificate of Original Registry, providedthat the document, duly certified to be a true copy of the original bythe State of original registry or by the Philippine Embassy/Consulateconcerned, shall be submitted within sixty days from approval of theapplication.

(g) Board Resolution/Secretary’s Certificate duly notarized, certified bythe Board Secretary, authorizing the filing of the application anddesignating the officials/authorized representatives to represent theapplicant-company.

(h) Assignment of Bank Deposit (cash bond of One Hundred ThousandPesos).

(i) Builders Certificate (For New Buildings).(2) For bareboat sub-charter applications, the following additional docu-

ments shall be submitted:(a) Copy of the consent of Registered Owners to the Bareboat Sub-

Charter Agreement entered into by and between the disponent own-ers and bareboat sub-charterers, provided that the document, dulynotarised in the State where it was issued/executed and authenticatedby the Philippine Embassy/Consulate concerned, shall be submittedwithin sixty days from approval of the application.

(b) Power of Attorney or Board Resolution authorizing the person whoissued the consent to act as such on behalf of the bareboat charterers,provided that the document, duly notarised in the State where it wasissued/executed and authenticated by the Philippine Embassy/Con-sulate concerned, shall be submitted within sixty days from approvalof the application.

(c) A copy of the certificate of Good Standing of the bareboat sub-charterers recently issued by the State of Registry, provided that the

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original copy of the document shall be submitted within thirty daysfrom approval of the application.

(3) The following post-approval documents, if applicable, shall be submittedwithin the prescribed period as stipulated in the MARINA approval:(a) Coloured photographs (different angles) of the ship showing the

place of registry in the stern portion.(b) Certified true copy of the ship’s Protocol of Delivery and Acceptance.(c) Sworn statement of crew salaries and wages (on an annual basis),

indicating therein the names of all crew members, their respectivepositions, and corresponding salaries/wages.

(d) Ship’s drydocking schedule and list of survey status.(e) Proof of monthly payment of the 4.5% withholding tax with a break-

down of payments by ship (original copy of BIR receipts shall bepresented for verification purposes).

(f) Original copy of a document issued by the State of original registryproviding details of the ship’s name, ownership, and registeredmortgages.

8. ESSENTIAL LAWS AND REGULATIONS APPLYING TO PHILIPPINE VESSELS

IN RESPECT OF MANNING, EMPLOYMENT, SOCIAL SECURITY, AND SO ON

8.1. International Conventions

The Philippines through the PMMRR adheres to the following InternationalConventions, as amended, including relevant resolutions and recommendations:

(1) International Convention for the Prevention of Pollution to the Sea byOil (OILPOL) (London, 12 May 1954).

(2) The International Convention on Load Line (LL), 1966.(3) The International Tonnage Convention, 1969.(4) The International Regulations for Preventing Collisions at Sea (COLREG),

1972.(5) The International Convention for the Prevention of Pollution from

Ships (MARPOL), 1973/1978.(6) The International Convention for Safety of Life at Sea (SOLAS), 1974/

1978.(7) The International Convention on Standards of Training, Certification

and Watchkeeping for Seafarers (STCW), 1978/1995.(8) The United Nations Convention on the Law of the Sea, 1982.(9) International Convention Civil Liability for Oil Pollution Damage, 1992.

(10) ISM Code, effective July 1998.(11) High-Speed Craft Code adopted by the IMO on 20 May 1994.(12) Any related international maritime conventions in force.

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8.2. National laws and regulations – other than those arising from theafore-mentioned conventions – in respect of:

(i) Number of officers and crewThe number of officers and crew are governed by MARINA, whose rulesmust be complied with. The PCG is the agency tasked by Philippine lawto strictly enforce these rules.

(ii) Nationality of officers and crew and immigration laws to be observedwhen hiring foreignersPhilippine immigration and employment laws generally prohibit a non-Filipino from being employed on a Philippine vessel unless previouslyexempted by MARINA.

(iii) Certificates of masters and officers/ratingsThe certificates of competency of masters and officers are issued by theProfessional Regulatory Commission (PRC) under R.A. 8544, and theratings are issued Certificates of Competency by the Technical Educa-tion and Skills Development Authority (TESDA).

(iv) Rules in respect of minimum wages/hire, vacation, social security,insurance, etc.Conditions of employment and social security applicable to seamen aregoverned by Philippine labor laws. For example, Philippine seamen areusually covered by Workers’ Compensation statutes, whereby a workerreceives guaranteed compensation for illness and injury caused by hisemployment. Employee benefits and working conditions are also dealtwith in union agreements.

9. ESSENTIAL LAWS AND REGULATIONS APPLYING TO PHILIPPINE VESSELS

WITH RESPECT TO SAFETY OF SHIPS AND ENVIRONMENTAL PROTECTION

9.1. International conventions

The Philippines is a signatory to the International Convention for SOLAS,1974. The Philippines is also a signatory to the International Convention on LL,1966, International Convention on Tonnage Measurements, 1969 and MAR-POL, 1973/1978 and the Annexes thereto, and the Fund Convention Protocolof 1992.

The Philippines adheres to the major international conventions relating to oilpollution, namely, the OILPOL 1954 which entered into force on 26 July 1958,the Convention on Prevention of Marine Pollution by Dumping of Wastes andOther Matters (1971), as modified by the Amendment of 1978 to Annexes(Incineration Amendment), the Amendment of 1980 (List of Substances, andthe International Convention for the Prevention of Pollution from Vessels,1973) and the MARPOL 1973/1978.

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9.2. National laws and regulations

Numerous regulations have been enacted in respect of safety of vessels whichare principally embodied in the PMMRR and enforced by the Philippine CoastGuard (PCG).

10. FLAGGING OUT OF VESSELS THAT REMAIN REGISTERED IN THE COUNTRY

Such a procedure is not available in the Philippines.

11. DOES THE LAW OF THE COUNTRY REQUIRE THE OBSERVATION OF

LAWS AND REGULATIONS IN RESPECT OF MANNING, EMPLOYMENT,SOCIAL SECURITY, AND/OR IN RESPECT OF SHIP SAFETY AND ENVIRONMENTAL

PROTECTION AFTER THE VESSEL IS FLAGGED OUT BUT STILL REGISTERED

IN THE COUNTRY?


12. REGISTRATION OF RIGHTS IN RESPECT OF VESSELS UNDER CONSTRUCTION

12.1. Type of register

The Philippines has no regulations for rights to a vessel which is about to bebuilt or equipped in the Philippines. Philippine law covers a situation where thevessel has been completely built.

12.2. Content of record


12.3. Inspection and search of record book


12.4. Registration and fees

When the vessel’s construction is completed, the MARINA shall require allthe documents referred to in A3.1 and fees for registry referred to in A2.5, except

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vessels of 3 GT and below, wherein a CN will be issued by the PCG pursuant toMC 139, S. 1998, whereby the MARINA delegated some of its functions tothe PCG.

In the case of a foreign-built vessel, particulars concerning the vessel’s build-ing and a bill of sale or other documents establishing title are required.

12.5. Type of vessel which may be registered

The same vessels as those described in A2.2, supra.

12.6. At what stage during the construction can a vessel be registered?

Construction of the vessel must be completed and the vessel must have beenmeasured by an appointed surveyor before registration may occur.

12.7. Which type of rights can be registered?


12.8. Restrictions as to the nationality of the purchaser of the vesselunder construction


12.9. Ownership of vessel under construction


B. Registration of Mortgages on Vessels and Vessels underConstruction and Legal Nature of Mortgages

13. SOURCES OF LAW

13.1. Sources of national law and general characterization of mortgageswithin the legal system of the country

Philippine law on ship mortgage is principally embodied in PD 1521,otherwise known as the Ship Mortgage Decree of 1978. PD 1521 is patterned

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closely on the provisions of the US Ship Mortgage Act of 1920 and on LiberianMaritime Law relating to preferred mortgages.

13.2. Different types of vessel mortgages

PD 1521 covers both domestic and foreign mortgages.

13.3. Applicable international conventions

The Philippines is not a party to the International Convention for the Uni-fication of Certain Rules Relating to Maritime Liens and Mortgages of 1967 orthe 1926 Convention Relating to Maritime Liens and Mortgages, nor has thePhilippines incorporated the rules of either Convention into its national law.

14. REGISTER

14.1. Description if separate from vessel’s register

Every mortgage of a ship which is registered in the Philippines shall beregistered in the Record of Transfer and Encumbrances of Ships. However,no Philippine vessel shall be mortgaged to non-Filipinos or foreign corporationswithout approval from MARINA and the Central Bank of the Philippines(section 19(d), PD 1521). In contrast, mortgages to Philippine citizens or cor-porations need not have approval from MARINA or the Central Bank of thePhilippines.

14.2. Documents and their legal form required for registration of mortgages

Section 4 of PD 1521 provides, thus:

SEC. 4. Preferred Mortgages:(a) A valid mortgage which at the time it is made includes the whole of

any vessel of domestic ownership shall have in respect to such vesseland as of the date of recordation, the preferred status given by theprovisions of Section 17 hereof, if:(1) The mortgage is recorded as provided in Section 3 hereof;(2) An affidavit is filed with the record of such mortgage to the effect

that the mortgage is made in good faith and without any designto hinder, delay, or defraud any existing or future creator of themortgagor or any lien of the mortgaged vessel;

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(3) The mortgage does not stipulate that the mortgagee waives thepreferred status thereof;

(b) Any mortgage which complies with the above conditions is hereaftercalled a ’preferred mortgage’. For purposes of this Decree, a vesselholding a provisional Certificate of Philippine Registry is considereda vessel of domestic ownership such that it can be subject of pre-ferred mortgage. The Maritime Industry Authority is hereby autho-rized to enter a vessel holding a Provisional Certificate of PhilippineRegistry in the Registry of Vessels and to record any mortgage exe-cuted thereon. Such mortgage shall have the preferred status as ofthe date of recordation upon compliance with the above conditions.

(c) There shall be endorsed upon the documents of a vessel covered by apreferred mortgage:(1) The names of the mortgagor and mortgagee;(2) The time and date the endorsement is made;(3) The amount and date of maturity of the mortgage; and(4) Any amount required to be endorsed by the provisions of para-

graphs (e) or (f) of this Section.(d) Such endorsement shall be made by the MARINA Regional Office

of the port of documentation of the mortgaged vessel.In the case of a vessel holding a provisional certificate of VesselRegistry, the endorsement shall be made by the Philippine consulabroad upon direction by wire or letter from the MARINA at therequest of the mortgagee and upon tender of the cost of communi-cation of such direction. A certificate of such endorsement, givingthe place, time and description of the endorsement, shall be recordedwith the records of registration to be maintained at the PhilippineConsulate.

(e) A mortgage which includes property other than a vessel shall not beheld a preferred mortgage unless the mortgage provides for the sep-arate discharge of such property by the payment of a specifiedportion of the mortgage indebtedness. If a preferred mortgage soprovides for the separate discharge, the amount of the portion ofsuch payment shall be endorsed upon the documents of the vessel.

(f) If a preferred mortgage includes more than one vessel and providesfor the separate discharge of each vessel by the payment of a portionof mortgage indebtedness, the amount of such portion of such pay-ment shall be endorsed upon the documents of the vessel. In casesuch mortgage does not provide for the separate discharge of a vesseland the vessel is to be sold upon the order of a district court of thePhilippines in a suit in rem in admiralty, the court shall determinethe portion of the mortgage indebtedness increased by 20 per cen-tum (1) which, in the opinion of the court, the approximate value ofall the vessels covered by the mortgage, and (2) upon the payment ofwhich the vessel shall be discharged from the mortgage.

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In contrast, ‘ordinary mortgages’ (i.e., those which are not preferred andwhich do not comply with section 2 of PD 1521) may be annotated withMARINA pursuant to Regulation XV/25 of the PMMRR which provides:

(1) the name of the ship;(2) the name and postal address of the parties to the mortgage;(3) the time and date of reception of the instrument;(4) the interest of the mortgagor in the ship being mortgaged;(5) the date of the mortgage contract;(6) the amount and date of maturity of the mortgage;(7) name, nationality, and residence of the owner of the ship; and(8) any material change of condition in respect to any of the preceding items.

Annotation of the mortgage shall be reflected on the reverse side of the CPRand CO, or CN, whenever applicable.

14.3. Costs of registration

Fees to be paid on the registration of a mortgage are payable to the MARINA,as follows:

For the Domestic Shipping Sector, pursuant to MARINA MC No. 2005-001:

– below P5,000.00 P2,500.00– P5,000.00–P25,000.00 P2,500.00 þ P0.72/P1,000 in excess of

P5,000.00– Over P25,000.00 P3,000.00 þ P0.60/P1,000.00 in excess

of P25,000.00

For the Overseas Shipping Sector, pursuant to MARINA MC No. 2008-06:

– P5,000.00–P25,000.00 P550.00 þ 0.60/P1,000.00 in excess ofP5,000.00

– Over P25,000.00 P1,650.00 þ 0.40/P1,000 in excess ofP25,000.00

15. DEFINITION OF VESSELS WHICH MAY BE MORTGAGED

All vessels qualified to be registered as stated in A2.2 herein may be mortgaged.

16. WHO CAN BE A MORTGAGEE

Any citizen of the Philippines, or any association or corporation organizedunder the laws of the Philippines, at least 60% of whose capital is owned by

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citizens of the Philippines may, for the purpose of financing the construction,acquisition, purchase of vessels or initial operation of vessels, freely constitute amortgage or any other lien or encumbrance on his or its vessels and its equip-ment with any bank or other financial institutions, domestic or foreign (section2, PD 1521).

17. KIND OF RIGHTS AND/OR CLAIMS FOR WHICH

A MORTGAGE CAN BE REGISTERED

17.1. Existing rights/claims for definite amounts

Preferred ship mortgages can only be granted for purposes of financing the‘construction, acquisition, purchase or initial operation’ of a vessel. The vessel tobe mortgaged may be the same vessel which was financed when constructed,purchased or acquired or it may be another vessel belonging to the mortgagor.Should a Philippine Court rule that a particular mortgage was not given inconnection with the construction, acquisition, purchase, or initial operationof the vessel, the mortgage would not be a preferred ship mortgage at all andwould not be entitled to the protection afforded to it by the Ship MortgageDecree. Such a ruling would not, however, be a formidable barrier to foreclo-sure. The mortgage could still be foreclosed as an ordinary chattel mortgageunder Act 1508, otherwise known as the Chattel Mortgage Law.

17.2. Future rights/claims and/or for indefinite amounts


17.3. As security for a guarantee


17.4. As security for revolving debts


17.5. Currency in which the mortgage can be registered

The mortgage can be registered in any currency.

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18. CLAIMS FOR INTEREST AND COSTS

Claims for interest are secured by the terms of the statutory form of a principalsum and interest mortgage. In the event of default and if the mortgagee exerciseshis right to foreclose on and sell the vessel, the mortgagee is entitled to deductthe costs of the sale from the proceeds and proceed against the mortgagor by anaction in personam for any deficiency between the mortgage debt and interestand the net proceeds (sections 17(a) and 18, PD 1521).

19. PARTICULARS RECORDED IN RESPECT OF A MORTGAGE

19.1. In respect of a mortgage on a vessel registered in the country

Section 3(b) of PD 1521 provides:

The MARINA shall record mortgages delivered to him, in the order of theirreception, in books to be kept for that purpose and indexed to show:

(1) The name of the vessel;(2) The names of the parties to the mortgage;(3) The time and date of reception of the instrument;(4) The interest in the vessel so mortgaged;(5) The amount and date of maturity of the mortgage;(6) Name, citizenship, nationality and residence of owner, and(7) Any material change of condition in respect to any of the preced-

ing items.

19.2. In respect of a mortgage on a vessel which is flagging in

As previously mentioned in Chapter 7 above, the vessel which is flagging in isissued a TCPR by the MARINA coterminous with the term of the BBC. Due tothe temporary nature of the Philippine registry issued to the vessel which isflagging in, the registration of the mortgage may not be necessary. Section15 of PD 1521 provides that a foreign mortgage shall be deemed a preferredmortgage in the Philippines and may be foreclosed in the event of default if thesame has been:

duly and validly registered in accordance with the laws of the foreign nationunder the laws of which the vessel is documented and has been registered inaccordance with such laws in a public registry either at the port of registry orat a central office

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20. FURTHER PRECONDITIONS FOR THE CREATION OF A VALID CHARGE

A copy of the mortgage should be furnished to the Central Bank of thePhilippines and, if the mortgagee is a foreigner, MARINA approval is alsoneeded.

21. PRIORITIES OF REGISTERED MORTGAGES INTER SE

Mortgagees are entitled to be in priority as between themselves according tothe time and date on which each mortgage is accepted for entering with theMARINA and not according to the date of the mortgages (section 17(a)(7),PD 1521).

22. PRIORITIES BETWEEN MORTGAGES AND OTHER REGISTERED

ENCUMBRANCES UNDER NATIONAL LAW

The preferred mortgage lien shall have priority over all claims against thevessel, except the following claims in the order stated:

(1) expenses and fees allowed and costs taxed by the court and taxes due tothe (Philippine) Government;

(2) crew’s wages;(3) general average;(4) salvage, including contract salvage;(5) maritime liens arising prior in time to the recording of the preferred

mortgage;(6) damages arising out of tort; and(7) preferred mortgage registered prior in time (section 17(a), PD 1521).

23. RELATION OF REGISTERED MORTGAGES TO UNREGISTERED

PREFERENTIAL RIGHT

23.1. Recognized right of retention

Not applicable.

23.2. Recognized possessory lien

Examples of possessory liens are a repairer’s claim for repairing a vessel, avessel owner’s claim for freight, a cargo owner’s claim for general average

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contribution, and a claim for salvage. The lien holder must remain continuouslyin possession of the vessel. The holder of a possessory lien has priority over amortgagee regardless of whether or when the mortgage is registered.

23.3. Recognized maritime liens

Maritime liens, including claims for salvage (including contract salvage),crew’s wages, general average, damages arising out of tort, any person furnishingrepairs, towage, use of drydock or marine railway or other necessaries, to anyvessel, whether foreign or domestic, upon the order of the owner have priorityover a mortgage (sections 17(a) and 21, PD 1521).

24. WHAT A REGISTERED MORTGAGE ATTACHES

The registered mortgage attaches to a vessel of domestic ownership (section4(a), PD 1521).

25. EFFECT OF PAYMENT OF DEBTS SECURED BY MORTGAGES

Priority between the number of subsequent mortgages does not alter as thedebts secured by earlier mortgages are reduced. The priority of the earlierregistered mortgages is maintained until such time as the mortgage debt iscompletely satisfied and the mortgage discharged. In case of a new advanceby a mortgagee with a high priority, his priority for that advance comes afterthose mortgages registered prior to the advance.

26. ASSIGNABILITY OF MORTGAGES

The mortgage can be assigned by the mortgagee by executing a deed ofassignment which should be notarized to comply with Article 1625 of theNew Civil Code which provides that ‘an assignment of a credit, right or actionshall produce no effect as against third persons unless it appears in a publicinstrument’. The transfer is then recorded following production of the originalmortgage to the MARINA.

27. EFFECT OF CHANGE OF OWNERSHIP OF VESSEL

In the case of change of ownership, the mortgagee’s security remains thesame and can be fully enforced without re-registering the mortgage. However,

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the new owner does not by operation of law assume personal liability for themortgage debt.

28. PROTECTION OF MORTGAGEES AGAINST SEIZURE, AND SO ON

When a vessel is forfeited to the State because the owners have engaged inillegal activities with the use of a vessel such as smuggling, protection of aninnocent mortgagee can be obtained by application to the Regional TrialCourt. However, the forfeiture of the vessel shall not be effected if it is estab-lished that the owner thereof or his agent in charge of the means of conveyanceused as aforesaid has no knowledge of or participation in the unlawful act;provided, however, that a prima facie presumption shall exist against the vesselunder any of the following circumstances:

(1) if the conveyance has been used for smuggling at least twice before;(2) if the owner is not in the business for which the conveyance is generally

used; and(3) if the owner is not financially in a position to own such a conveyance

(section 2531, Tariff and Customs Code of the Philippines).

29. MORTGAGE PROTECTION IN CASE OF DEREGISTRATION OF VESSEL

29.1. Into the register of another country

When a vessel is transferred into the register of another country, the Philip-pine register will be closed except as to any unsatisfied mortgages, which willremain on the register.

29.2. Into another register of the country

The permission of a mortgagee is required before the registry of a vessel istransferred to another port of registry in the Philippines. Fees are likewise pay-able to the MARINA.

29.3. In case of loss or constructive total loss of vessel

No protection is afforded to the mortgagee in the case of a total loss orconstructive total loss of the mortgaged vessel, apart from the right to claimagainst the mortgagor for payment in accordance with the terms of themortgage. It is normal for a mortgagee to provide in a collateral loan agreement

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for insurance against total loss of the vessel to be carried by the mortgagor withthe mortgagee as a named insured, or with an assignment to the mortgagee fromthe mortgagor of the mortgagor’s rights as owner under the insurance policy onthe vessel.

30. LIABILITY OF MORTGAGEES

30.1. In tort

A mortgagee who is not in possession of the vessel is usually not liable to anythird party in tort.

30.2. In contract

A mortgagee is not usually liable to third parties in contract. Where thecharterer does not impair the security of the mortgagee, the mortgagee is notentitled to interfere with the performance of the charter. Unless the mortgagee isshown to have agreed to assume the owner’s contracts with the master, crew orshippers, he will not be held liable for any of their claims.

30.3. In possession of the vessel

A mortgagee in possession may employ the vessel but will be held liable if hisimprudent use of the vessel while in possession results in a loss in the value of thevessel. He cannot use the vessel in a speculative or hazardous operation; if hedoes so, and loss or damage occurs, he will be liable.

A mortgagee in possession expressly or impliedly authorizing a master toorder supplies for the vessel, can be held liable to pay for the supplies (sections21 and 22, PD 1521).

31. SUBMISSION TO ENFORCED EXECUTION UNDER THE MORTGAGE


32. RECORDING OF MORTGAGES ON VESSELS UNDER CONSTRUCTION

32.1. Type of mortgages


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32.2. Precondition for recording of a mortgageunder construction


32.3. Documentation required for recording of a mortgageon a vessel under construction


32.4. Evidence of a duly recorded mortgage


32.5. Who can legally hold a mortgage?


32.6. In which way can a valid charge be created ona vessel under construction?


32.7. Legal effects of a valid mortgage on a vesselunder construction


32.8. To what a registered mortgage of a vessel underconstruction attaches?


32.9. Effect of payment of a mortgage


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32.10. Can a mortgage be assigned?


32.11. Effect of change of ownership of a vessel under construction


32.12. Procedure on delivery of the vessel


32.13. Enforcement of mortgage on a vessel under construction


32.14. What other security will normally be given for financing a vessel underconstruction if a mortgage cannot be recorded


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Philippines

Domingo G. Castillo

Part III. Judicial Sales of Vesselsand Priority of Claims


Maritime Law HandbookSuppl. 40 (August 2011) Philippines Part III – i

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Philippines Part III – iiMaritime Law HandbookSuppl. 40 (August 2011)

Domingo G. Castillo

Domingo G. Castillo was born in Manila, Philippines, in 1952. He obtainedhis Bachelor of Science in Business Administration (BSBA) and Bachelor ofLaws (Ll B) from the University of the Philippines in 1973 and 1977, respec-tively. He then obtained his Master of Laws (Ll M) in 1981 from New YorkUniversity. Before returning to the Philippines, he was a foreign attorney withthe San Francisco law firm of Heller, Ehrman, White and McAuliffe in 1982 andthe London firm of Sinclair, Roche and Temperley in 1983. He is currently apartner in the firm of SyCip Salazar Hernandez & Gatmaitan, with offices at theSeventh Floor, SyCipLaw Center, 105 Paseo de Roxas, 1226 Makati City,Philippines, Tel. Nos. (63-2) 982-3500, 982-3600, and 982-3700, Fax Nos.:817-3896 and 818-7562; e-mail address: [email protected]

Mr Castillo is a member of the Philippine Bar, Past President of the MaritimeLaw Association of the Philippines, a Director of the Integrated Bar of thePhilippines (Makati Chapter) in 1991 to 1995 and Chairman of the Inter-PacificBar Association (IPBA), 2009–2011. He delivered a paper on ‘Obtaining Secu-rity in Maritime Cases’ before the International Bar Association’s Section onBusiness Law in Hong Kong in 1991 and a paper on the ‘Current Operating andLiability Issues in the Pacific Rim Passenger Cruise Trade’ in 1995 in San Fran-cisco, California, before the IPBA. He has attended a number of maritimeconferences, notably the Maritime Law Association of the United States - FallMeetings held in Orlando, Florida, Scottsdale, Arizona, and Bermuda and PalmDesert in 1989, 1991, 1993, and 1997, respectively, and the Second AnnualConference of the IPBA held in Sydney, Australia in May, 1992. In October2000, he was invited by the China Maritime Law Association to deliver a paperon ‘Maritime Fraud and Scams’ in Shenzhen, People’s Republic of China. Hedelivered a paper on the ‘Limitation of Liability of Shipowners’ before the 4thInternational Conference in Maritime Law in Piraeus, Greece, on 8 June 2001.


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Philippines Part III – ivMaritime Law HandbookSuppl. 40 (August 2011)

Table of Contents

List of Abbreviations vii

Part III. Judicial Sales of Vessels and Priority of Claims 1

A. Judicial sales 1

CHAPTER 1. Sources of law 11.1. National law 11.2. Applicable international conventions 1

CHAPTER 2. Preconditions to a judicial sale 12.1. General position 12.2. Sale pendente lite 22.3. Foreign judgments 22.4. Mortgage title 32.5. Possessory liens 3

CHAPTER 3. Custody and maintenance of the vessel pending sale 43.1. The sheriff 43.2. The sheriff’s costs 43.3. Insurance aspects 5

CHAPTER 4. Preparations for sale 54.1. Appraisement and reserve price 54.2. Advertisements and sale conditions 54.3. Time element 64.4. Miscellaneous 6

CHAPTER 5. The sale procedure 75.1. Bidding and reserve price 75.2. Currency aspects 75.3. Bidding by claimants 7

CHAPTER 6. Post-sale arrangements 86.1. Appeal 86.2. Registration 8

6.2.1. Philippine-flag vessel 86.2.2. Foreign-flag vessel 9

6.3. The fund in court 106.4. Priorities and payment out 10

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Maritime Law HandbookSuppl. 40 (August 2011) Philippines Part III – v

CHAPTER 7. National and international recognition of judicialsales 107.1. Effect of court sales under Philippine law 107.2. Recognition abroad of Philippine court sales 117.3. Documentation 11

B. Priority of Claims 11

CHAPTER 8. Priorities: sources of law 11

CHAPTER 9. Claims and possessory rights falling outside thepriorities system 129.1. Introduction 129.2. Possessory liens 13

CHAPTER 10. Prior charges on the gross sale proceeds 13

CHAPTER 11. Preconditions to participation in the prioritiescontest 13

CHAPTER 12. Maritime liens 1412.1. Introduction 1412.2. Sister ships 18

CHAPTER 13. Mortgages 1813.1. Recognized types of mortgages 18

CHAPTER 14. Non-preferred claims in rem 18

CHAPTER 15. Non-ranking claims 19

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Philippines Part III – viMaritime Law HandbookSuppl. 40 (August 2011)


Blg BilangBP Batas PambansaMARINA Maritime Industry AuthorityPCG Philippine Coast GuardPMMRR Philippine Merchant Marine Rules and RegulationsPD Presidential DecreeRA Republic Act

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Maritime Law HandbookSuppl. 40 (August 2011) Philippines Part III – vii

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Philippines Part III – viiiMaritime Law HandbookSuppl. 40 (August 2011)

Part III. Judicial Sales of Vessels and Priorityof Claims

A. Judicial sales

1. SOURCES OF LAW

1.1. National law

The law and procedure relating to judicial sales of vessels are found in Pre-sidential Decree (PD) 1521 (otherwise known as the ‘Ship Mortgage Decree of1978’), and in the general provisions of the 1997 Rules of Civil Procedure deal-ing with attachment. Under Batas Pambansa (BP) Bilang (Blg) 129, as amendedby Circular No. 20-99 dated 15 April 1999 issued by the Office of the CourtAdministrator, jurisdiction in admiralty and maritime matters where thedemand or claim exceeds three hundred thousand pesos PHP 300,000 (USD6,923.00) or, in Metro Manila, where such a demand or claim exceeds PHP400,000 (approximately USD 9,231.00) is allocated to the Regional Trial Courts(section 19(3), BP 129; Republic Act (RA) 7691).

1.2. Applicable international conventions

The Philippines is not a party to either the 1926 or 1967 Brussels Conventionson maritime liens and mortgages.

2. PRECONDITIONS TO A JUDICIAL SALE

2.1. General position

Before a sale order will be made in respect of a vessel, an action in rem must beissued out of a Philippine court by the party seeking the sale order; the summonsand a copy of the complaint must have been served upon the vessel and thevessel must be under arrest in that action. The court will issue a sale order only inrespect of a vessel which is under arrest in an action commenced by the plaintiffor by the party seeking the sale order. A vessel which is under arrest may beallowed by the court to trade through a receiver (section 16, PD 1521).

Once a vessel has been arrested, there are two procedures by which it may be sold:

(i) sale order pendente lite; and(ii) sale order upon judgment.

Maritime Law HandbookSuppl. 40 (August 2011) Philippines Part III – 1

2.2. Sale pendente lite

Sale prior to judgment may be ordered either if the vessel under arrest is a‘wasting asset’ or if such a sale would be in the interest of all the parties to theaction. Section 11 of Rule 57, of the 1997 Rules of Civil Procedure, provides:

Whenever it shall be made to appear to the court in which the action ispending, upon hearing after notice to both parties if practicable, that theproperty attached is perishable, or that the interests of all the parties to theaction will be subserved by the sale thereof, the court may order suchproperty to be sold at public auction in such manner as he may directand the proceeds to be deposited in court to abide the judgment in theaction.

Under Philippine law, the term ‘perishable’ ordinarily means subject tospeedy and natural decay, but where the time contemplated is necessarilylong, the term may embrace material depreciation in value from causes otherthan such decay.

When a vessel is arrested in respect of a claim, it is the responsibility of theshipowner to provide security for the claim so that the vessel may then bereleased from arrest. The security may be in the form of a counterbond issuedby a Philippine surety or bonding company, or a cash deposit in an amount thatis double the value of the claim, in order to secure the payment of any judgmentthat the plaintiff may recover in the action. If a shipowner is unable to providesecurity, that inability may be regarded as showing that the shipowner isinsolvent and likely to be unable to pay for the vessel’s continuing costs(such as, but not limited to, port charges, crew salaries and wages, insuranceand watchmen).

2.3. Foreign judgments

The Regional Trial Court shall exercise exclusive original jurisdiction to makea sale order only in actions in admiralty and maritime jurisdiction where thedemand or claim exceeds three hundred thousand pesos (PHP 300,000) (approx-imately USD 6,923.00) or, in Metro Manila, where such a demand or claimexceeds PHP 400,000 (USD 9,231.00). In the event that the demand or claimdoes not exceed PHP 300,000 or, in Metro Manila, PHP 400,000, the Metro-politan Trial Courts shall have exclusive jurisdiction. In any event, a sale orderwill be made only in respect of a vessel which is at that time under arrest by aPhilippine court which issued said arrest order. A claimant who has obtained ajudgment abroad or who has had a foreign arbitration award made in his favour,usually has two choices. First, he may begin again by issuing a new or freshcomplaint or proceedings in rem in respect of his claim out of the Philippinecourt and by applying to arrest the relevant vessel in those proceedings. In such

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Philippines Part III – 2Maritime Law HandbookSuppl. 40 (August 2011)

cases, the foreign judgment or arbitration award will be accepted as conclusivejudgment upon the title to the vessel or, in the case of a judgment against theperson, the judgment is presumptive evidence of a right as between the partiesand their successors-in-interest by a subsequent title. Thus, section 48 ofRule 39 of the 1997 Rules of Civil Procedure provides:

Effect of Foreign judgment. - The effect of a judgment or final order of atribunal of a foreign country, having jurisdiction to render the judgment orfinal order is as follows:

(a) In case of judgment or final order upon a specific thing, the judgmentor final order is conclusive upon the title to the thing;

(b) In case of a judgment or final order against a person, the judgment orfinal order is presumptive evidence of a right as between the partiesand their successors in interest by a subsequent title.

In either case, the judgment or final order may be repelled by evidence of awant of jurisdiction, want of notice to the party, collusion, fraud or clearmistake of law of fact.

Second, he may seek to enforce his existing arbitration award, because thePhilippines is a signatory to the 1958 New York Convention on the Recognitionand Enforcement of Foreign Arbitral Awards. However, a foreign arbitral awardis not directly enforceable in the Philippines. The claimant who is seeking toenforce the foreign arbitral award must likewise file a new or fresh complaint orproceedings in rem in respect of his claim with the Regional Trial court.

2.4. Mortgage title

Philippine law does not have the concept of an ‘enforceable title’ or ‘mortgagetitle’. Mortgages are enforced by ordinary court actions pursuant to PD 1521 (ifthe mortgagee is a ‘preferred ship mortgage’ under said decree) or foreclosed inaccordance with the provisions of the Philippine Chattel Mortgage Law (ActNo. 1508) (if the mortgage is one that is an ordinary mortgage and not a pre-ferred ship mortgage).

2.5. Possessory liens

A vessel may be arrested while it is in the possession of a party entitled to apossessory lien and the court may then direct the sheriff to take possession of thevessel, notwithstanding the fact that the vessel is in the possession or under thecontrol of a person claiming a possessory common law lien (section 16, PD1521). An arrest in such instances terminates the rights of the possessory lienorbecause, under section 17(A) of PD 1521, all pre-existing claims over the vessel,including any possessory common law lien, shall be held terminated and shall

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thereafter attach in like amount and in accordance with the ranking of prioritieslisted in Chapter 8, below.

3. CUSTODY AND MAINTENANCE OF THE VESSEL PENDING SALE

3.1. The sheriff

Arrest orders issued by Philippine courts are enforced by the implementingsheriff of that court, who is considered an officer of the court. The sheriff is in allcases responsible for the arrest, custody, sale and release of vessels pursuant toorders made by that Philippine court. The duties of the sheriff as ‘custodian’ of avessel are quite narrowly defined and do not extend to an all-embracing respon-sibility for the welfare of the vessel. The sheriff’s responsibilities do not supplantthose of the shipowner. The sheriff’s fundamental duty is to keep the vesselunder arrest and take steps to try and ensure that the vessel will not be able todepart unlawfully. This may be done by notifying the Maritime IndustryAuthority (MARINA), Philippine Bureau of Customs and the Philippine PortAuthority together with the Philippine Coast Guard (PCG). If the circumstancesdemand it, the sheriff may also take steps to ensure that the vessel is securelymoored or berthed. If the vessel has her own crew on board, the sheriff may beprepared to rely upon them to attend to the moorings and act as watchmen.Alternatively, a lay-up crew may be supplied by the vessel’s mortgagees, if theship owner is insolvent. But if the vessel would otherwise have no crew, thesheriff may employ one or more watchmen to keep the vessel safe. The sheriffdoes not take out insurance over the vessel under arrest for the benefit of theclaimants. The claimants generally take out their own insurance over the vessel.The sheriff will not incur expense in maintaining, refitting, repairing, or reno-vating a vessel. In general, the sheriff will incur the least possible expenditureconsistent with the performance of his duties, otherwise he might be criticizedfor unnecessarily depleting the net sales proceeds of the vessel. However, thecourt may order the sheriff to incur certain expenditures if necessary to enablethe vessel to be sold at a higher price.

3.2. The sheriff’s costs

The only funds available to the sheriff are those supplied to him by the arrestingparty or those incurred by the claimant on behalf of the sheriff. As soon as thesheriff begins to incur expenditure, he may call either the plaintiff or the plaintiff’scounsel to make a progress payment to him. A further undertaking must be given inrelation to any court sale expenses, after the sale order is issued. By the time a vesselis sold by the court, substantial expenditure may have been incurred in respect ofthe vessel’s arrest, custody, and sale. To the extent of such expenditure as may beadvanced to the sheriff by the plaintiff, the plaintiff is entitled to recover the sum in

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question from the sales proceeds based on the ranking of priorities provided insection 17(A) of PD 1521 – see Chapter 8, below.

3.3. Insurance aspects

It is always possible that a vessel may suffer damage while under arrest. Forexample, heavy weather may cause a vessel to break her moorings and to damageother vessels or fixed objects before going aground. Third parties who sufferdamage as a result of such an event will be entitled to pursue claims against thevessel and those claims may take priority over the claim in respect of which thevessel was originally arrested. Damage to the vessel herself may result in her salesproceeds being smaller than would otherwise have been the case. Parties withsubstantial claims against the vessel should always consider insuring against sucheventualities. Mortgagees may often have the benefit of insurance by being theassignees of the shipowner’s insurance.

4. PREPARATIONS FOR SALE

4.1. Appraisement and reserve price

When a sale order is issued, the sheriff is instructed by the court to carry out thesale and all such arrangements are thereafter in his hands. The plaintiff’s rolewould be in filing the motion to sell the vessel, where the terms and conditionsof sale are usually enumerated. During the hearing on the plaintiff’s motion tosell, Philippine courts would generally require the defendant-shipowner or thebareboat charterer to file his comment or opposition thereto within the period offive to ten days from said hearing. Generally, Philippine courts would require theplaintiff to procure an appraisal report issued by a competent surveying firm todetermine the ‘floor price’. The appraised value is intended to be a realistic esti-mate of the vessel’s current commercial value, taking into account such factors as:her age, type, and condition; the fact that she would be sold ‘as is - where is’ in aforced sale; and the current state of the market for vessels of the type in question.In arriving at the appraisal report, no regard is given to the value of the claims orjudgments existing against the vessel. The appraisal report is usually attached tothe motion to sell, to enable the defendant-shipowner to either agree or impugnthe same. Afterwards, the court sets the ‘floor price’ of the vessel.

4.2. Advertisements and sale conditions

As soon as the surveyor’s report on the appraised value of the vessel is avail-able, Philippine courts usually require the plaintiff to advertise the sale of thevessel once a week for three consecutive weeks in a newspaper of general

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circulation. In said advertisements, the terms and conditions of the sale of thevessel will be enumerated, such as: the time and date of the sale of the vessel; theneed to have a cash bond of approximately 10%–20% of the floor price toencourage willing and earnest buyers to participate in the bidding; how thebids will be submitted (i.e., either sealed or open bidding); the currency whichthe court will accept; the person to contact to obtain the necessary boarding passesto enable interested parties to inspect the vessel; and such other terms and con-ditions which the court may deem necessary to safeguard the rights of all parties inthe action.

It must be stressed that in the case of a foreclosure sale of a mortgaged vessel,section 20 of PD 1521 provides:

Sec. 20. Who May Bid in the Foreclosure Sale - The following persons arequalified to bid in the foreclosure sale of the mortgaged vessel:

(A) Citizens of the Philippines or corporations 60% of the capital ofwhich is owned by Filipino citizens

(B) A foreign mortgagee or foreign national whose country has dip-lomatic relations with the Philippines or whose country grantsreciprocal rights to Filipino citizens.

A Philippine court generally includes the above-mentioned section in theadvertisement to inform prospective bidders whether they are qualified to bidunder Philippine law in the event of a foreclosure of a mortgaged vessel.

4.3. Time element

The actual date of sale is usually fixed by the Philippine court to take place onthe fourth week after the publication of the last of the three advertisementsreferred to in Chapter 4.2, above.

4.4. Miscellaneous

Prospective purchasers are free to inspect the vessel to be sold, but they mustobtain the required boarding passes from either the sheriff or the claimant.Bidders are not required to file or lodge any ‘good faith’ deposit in advance,as a pre-condition to being entitled to bid. However, it has been the practice ofmany Philippine courts to require each bidder to place at least a 10% to 20%bidder’s bond (usually a manager’s or cashier’s check payable to the PhilippineCourt ordering the sale) to deter nuisance bidders, who are not genuinely inter-ested in buying the vessel, from participating in the bid. The bidder’s bond isgiven and considered part of the bidding price if said bidder is the winningbidder, while the losing bidders get back their bonds after the declaration ofthe winning bidder.

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5. THE SALE PROCEDURE

5.1. Bidding and reserve price

Generally, Philippine courts determine the terms and conditions of the bid-ding procedure having due regard to the best interests of all the parties in theaction. Usually, many Philippine courts employ a sealed bidding method toabbreviate the proceedings. The sealed bids are opened by the sheriff at theappointed time in the presence of the Presiding Judge of that court togetherwith all representatives of the parties to the action. If the highest bidder is abovethe floor price, the court will declare him as the winning bidder, appropriate hiscash bond, and order him to pay the remaining balance within seventy-twohours counted from the time he is declared the winner by the court. If thehighest bidder pays the remaining balance within the required period, thecourt will issue a certificate of sale to him. In the event that said bidder failsto pay, his cash bond is forfeited and a date will be fixed for another round ofbidding. Moreover, section 20 of Rule 39 of the 1997 Rules of Civil Procedureprovides that when a winning bidder fails to pay, the sheriff may thereafter refuseany subsequent bid from that person.

5.2. Currency aspects

Philippine courts usually require that bids be denominated in either Philip-pine pesos or in United States (US) dollars. Sales proceeds which are received bythe court in Philippine pesos are usually placed in an interest-bearing account,usually with the Land Bank of the Philippines. If the sales proceeds are receivedin US dollars, the court may either convert them to Philippine pesos at thecurrent exchange rate or open a Foreign Currency Deposit Unit, usually withthe Land Bank of the Philippines (this commercial bank is the depository of thePhilippine government and the courts), in an interest- bearing account. In anycase, the lawyers acting for the claimants should make a positive check to deter-mine whether the funds are placed in an interest-bearing account as large lossesmay accrue if they are not.

5.3. Bidding by claimants

The sales proceeds are regarded as entirely separate and distinct from anyclaims or judgments existing against the vessel. The sheriff’s duty is to sell thevessel at the highest price possible and account to the court for the entire pro-ceeds. There is no procedure available under Philippine law by which a judg-ment creditor or claimant who buys the vessel may set off the amount of hisjudgment or claim from the sale price. The buyer of the vessel generally pays thefull price; if he does not, his bidder’s bond of 10% to 20% of the floor price may

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be forfeited by the court. The exception to this rule is found in section 19(c) ofPD 1521 which provides:

Upon the sale of any vessel of the Philippines covered by a preferredmortgage in any extrajudicial sale or by order of a District Court of thePhilippines in any suit in rem in admiralty for the enforcement of a mar-itime lien other than a preferred maritime lien, the vessel shall be sold freefrom all pre-existing claims thereon; but the court shall, upon the request ofthe mortgagee, the plaintiff, or any intervenor, require the purchaser atsuch sale to give and the mortgagee to accept a new mortgage of the vesselfor the balance of the term of original mortgage. The conditions of suchnew mortgage shall be the same so far as practicable as those of the originalmortgage and shall be subject to the approval of the court. If such newmortgage is given, the mortgagee shall not be paid from the proceeds of thesale and the amount payable as the purchase price shall be held diminishedin the amount of the new mortgage indebtedness.

6. POST-SALE ARRANGEMENTS

6.1. Appeal

The sale of the vessel by the sheriff may be set aside on the grounds that thesale price is too low or that the bid was not duly advertised or that the terms andconditions of the sale issued by the court were not complied with.

6.2. Registration

Under the Philippine court’s terms and conditions of sale, all bidders mustpresent their bidder’s bond of at least 10% to 20% of the floor price of the vesselfor the sealed bid to be considered. Once the sheriff opens all sealed bids and awardsthe vessel to the highest bidder, the latter’s bidder’s bond is appropriated by thecourt and he is obliged to pay the remaining balance within the time prescribed bythe court, which is usually from 48 to 72 hours. Upon the payment of the remainingbalance, the court will issue an order formally awarding the vessel to the highestbidder, and thereafter the sheriff will issue a certificate of sale to the effect that apublic auction was conducted and that the highest bidder was awarded the vessel.The sheriff will then hand over to the winning bidder the vessel’s registrationdocuments and other certificates found on board the vessel. The consequencesof a sheriff’s sale for the registration of a vessel are set out below.

6.2.1. Philippine-flag vessel

If, prior to the sale, the vessel was registered under the Philippine flag, theMARINA will accept the sheriff’s certificate of sale as a valid transfer of title.

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If the buyer is qualified to continue the Philippine registration and wishes to doso, then the transfer of ownership of the vessel will be registered in the usual wayas set out in the Philippine Merchant Marine Rules and Regulations (PMMRR).If the buyer is qualified to own a Philippine-flag vessel, but in fact wishes toregister the vessel elsewhere, the buyer could first register the transfer with theMARINA and then delete the vessel from there. This has the advantage ofgetting the buyer’s name registered with the MARINA before deletion andmay make registration elsewhere more straightforward. A Philippine buyerwho intends to register the Philippine flag vessel elsewhere has first to obtainthe approval of the MARINA permitting him to register the vessel underanother flag or registry. In the event, however, of a foreclosure sale of a Philip-pine flag vessel mortgaged under the provisions of PD 1521, the foreclosure saleshall not require MARINA approval (section 19(e), PD 1521). Alternatively, ifthe buyer is not qualified to own a Philippine-flag vessel, he may simply producethe sheriff’s certificate of sale to the foreign registry authority. If the sheriff sells aPhilippine-flag vessel to a buyer who is not qualified to continue the Philippineregistration, the MARINA shall, upon presentation of the certificate of sale,cancel the registration of the vessel, and issue a certificate to that effect uponrequest (section 20, PD 1521).

6.2.2. Foreign-flag vessel

If, prior to the sale, the vessel was registered under the foreign flag, theconsequences of a sale by the Philippine court are as follows. The Philippinebuyer will be provided with a certificate of sale executed by the sheriff afterthe necessary Philippine customs tax and duties are paid. This is necessarybecause the foreign-flag vessel will be considered as being imported into thePhilippines if the buyer is a Philippine citizen who wishes to register, or totransfer registration, under the Philippine flag. In the case of a vessel with aforeign registry, no payment of taxes and duties is required if the buyer is aforeigner, that is, not a Philippine citizen. Experience shows that the foreignbuyer will be able to register the vessel in another registry simply by showingthe certificate of sale executed by the sheriff. It is usually helpful to have thesheriff’s signature authenticated by a notary public and in some cases anaffidavit or sworn declaration from a Philippine lawyer describing the effectsof a sheriff’s sale under Philippine law will also assist. Difficulty sometimesarises when there are arrears of registration fees owed by the former owners tothe pre-existing registration authority. In such a case, the former registrationauthority may refuse to issue a deletion certificate unless the arrears are paidby the buyer. Often, the buyer will succeed in registering the vessel in a newregistry of his choice without a deletion certificate simply by showing thesheriff’s certificate of sale.

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6.3. The fund in court

When the sheriff receives the sale proceeds of the vessel, and any bunkers andlubricants which were on board, he pays all these proceeds into court. The courtwill thereafter order the sale proceeds to be deposited in any Philippinecommercial bank, usually the Land Bank of the Philippines, in an interest-bearing account in the name of said court, to prevent any of the parties fromhaving control over the funds.

6.4. Priorities and payment out

Once the sales proceeds have been deposited in any commercial bank in thename of the court, any party who has obtained a judgment in rem against thevessel may apply to the court for payment out. Notice of any such application(in the form of a motion), must be served on all parties to the action. If there isserious opposition to the motion to withdraw the funds, the Judge may eitherresolve it immediately or issue orders for all parties to present evidence on theirrespective claims and thereupon rule on the priorities thereof.

7. NATIONAL AND INTERNATIONAL RECOGNITION OF JUDICIAL SALES

7.1. Effect of court sales under Philippine law

In the Philippines, upon the sale of any mortgaged vessel in an extraju-dicial sale or by order of any Regional Trial Court in the Philippines in a suitin rem in admiralty for the enforcement of a preferred mortgage lienthereon, all pre-existing claims against the vessel, including any possessorycommon-law liens, shall be terminated and shall thereafter attach to theproceeds of sale in the following order of priority, as provided in section17(A) of PD 1521:

(A) Upon the sale of any mortgaged vessel in any extrajudicial sale or byorder of a district court of the Philippines in any suit in rem in admiralty forthe enforcement of a preferred mortgage lien thereon all pre-existing claimsin the vessel, including any possessory common-law lien of which a lienoris deprived under the provisions of Section 16 of this decree shall be heldterminated and shall thereafter attach, in like amount and in accordancewith the priorities established herein to the proceeds of the sale. The pre-ferred mortgage lien shall have priority over all claims against the vessel,except the following claims in the order stated:

(1) expenses and fees allowed and costs taxed by the court and taxes dueto the government;

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mortgage;(6) damages arising out of tort; and(7) preferred mortgage registered prior in time.

7.2. Recognition abroad of Philippine court sales

The Philippines is not a party to any maritime law convention which requiresreciprocal recognition of admiralty court sales. Philippine law has long recog-nized the validity of admiralty sales conducted by foreign courts. The basis ofsuch recognition is the doctrine in international law of ‘international comity’. Itis in practice rare for a vessel which has been sold by a court exercising itsadmiralty jurisdiction to be arrested subsequently in respect of a claim pre-dating the court sale. In those cases where such an arrest has taken place, thewriter’s experience has been that the vessel has always been released uncondi-tionally once the foreign court has been informed of the Philippine court’s saleand of the effect under Philippine law of such sale.

7.3. Documentation

When a Philippine-flag or a foreign-flag vessel is sold by a Philippine court,the buyer is issued simply with a sheriff’s certificate of sale and/or the court orderawarding the vessel to the highest bidder. If the buyer wishes to retain or transferto Philippine registry and is qualified to do so, the sheriff’s certificate of sale and/or the court order will be accepted by the PCG as if it were a bill of sale issued bythe previous owner of the vessel. As regards other requirements for registrationof vessels under the Philippine flag, see Part II of this handbook.

If the buyer of the vessel wishes to retain or transfer to a foreign flag, it is aquestion for the foreign jurisdiction as to what documentation will be required,but the only official documentary evidence of the transfer which the Philippinecourt will provide to the buyer is the sheriff’s certificate of sale.

B. Priority of Claims

8. PRIORITIES: SOURCES OF LAW

The ranking of priorities according to Philippine law is found in section 17(A)of PD 1521 which provides:

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Sec. 17. Preferred Maritime Lien, Priorities Other Liens:(A) Upon the sale of any mortgaged vessel in any extrajudicial sale orby order of a district court of the Philippines in any suit in rem inadmiralty for the enforcement of a preferred mortgage lien thereon allpre-existing claims in the vessel, including any possessory common-lawlien of which a lienor is deprived under the provisions of Section 16 ofthis decree shall be held terminated and shall thereafter attach, in likeamount and in accordance with the priorities established herein to theproceeds of the sale. The preferred mortgage lien shall have priorityover all claims against the vessel, except the following claims in theorder stated:

(1) expenses and fees allowed and costs taxed by the court and taxes dueto the government;


mortgage;(6) damages arising out of tort; and(7) preferred mortgage registered prior in time.

Section 17(A) was substantially copied from section 953 of the US ShipMortgage Act.

9. CLAIMS AND POSSESSORY RIGHTS FALLING OUTSIDE THE

PRIORITIES SYSTEM

9.1. Introduction

Section 17(B) of PD 1521 provides that if the proceeds of sale are insufficientto pay all creditors included in one number or grade, the residue will bedivided among them pro rata. All claims not paid, whether fully or partially,shall subsist as ordinary credits enforceable by personal action against thedebtor. Section 18(A) provides that upon the default of any term or conditionof a preferred ship mortgage, the mortgagee may, in addition to all otherremedies granted by PD 1521, bring a suit in personam in admiralty in theRegional Trial Court against the mortgagor for the amount of the outstandingmortgage indebtedness secured by such a vessel or any deficiency in full pay-ment thereof.

As may be gleaned from these two sections of PD 1521, all claims which arenot fully satisfied out of the sales proceeds of the vessel shall subsist as anordinary credit, and the unpaid claimant may attempt to recover the deficiencyby bringing an action in personam against the shipowner.

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9.2. Possessory liens

Under Philippine law, a party who carries out services to a vessel has the rightto retain possession of the same until the debt for the services is discharged.In the case of a suit in rem in admiralty for the enforcement of a preferredmortgage lien, section 16 of PD 1521 authorizes a Philippine court to directthe sheriff to take possession of the mortgaged vessel, notwithstanding the factthat the vessel may be in the possession, or under the control, of any personclaiming a possessory common law lien.

10. PRIOR CHARGES ON THE GROSS SALE PROCEEDS

Under Philippine law, the only recognized costs and charges relating to thearrest, custody, and sale of the vessel are those which are explicitly provided forunder section 17(A) of PD 1521 which was cited in Chapter 8 above. Section17(A)(1) states that expenses and fees allowed and costs taxed by the court andtaxes due to the government have not been explicitly defined by the PhilippineSupreme Court since the promulgation of PD 1521 in 1978. However, thiswriter’s experience with the Regional Trial Courts has been that the followingwould fall under this category:

– customs tax and duties to be paid to the Philippine Bureau of Customs forforeign flag vessels which are brought into the country;

– the port and berthing charges assessed by the Philippine Ports Authorityduring the arrest and detention of the vessel; and

– the fees and expenses of the sheriff and the upkeep of the vessel while underarrest.

11. PRECONDITIONS TO PARTICIPATION IN THE PRIORITIES CONTEST

When a vessel has been sold by a sheriff, the sale proceeds are generally paidinto court by depositing these with a commercial bank in the name of said court.The only exception to this rule is in the case of a sale of a Philippine-flag vesselcovered by a preferred mortgage. Under section 19(c) of PD 1521 (quoted inChapter 5.3 above), the buyer is required to give and the mortgagee to accept anew mortgage over the vessel for the balance of the term of the originalmortgage. In all other cases, any party who wishes to be paid out of the saleproceeds may intervene in said case, giving a clear statement of his claim and theamount which he seeks to recover. If the court is initially convinced as to therights of the intervenor, the court will allow the intervention upon the paymentof the necessary filing fees. Thereafter, the intervenor-claimant will present hisevidence to obtain part of the sales proceeds based on any of the priorities set out

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in section 17(A) of PD 1521. If the intervenor-claimant is successful in present-ing his evidence and the court is convinced, the claimants will then be ranked bythe court according to their priorities under section 17(A) of PD 1521.

12. MARITIME LIENS

12.1. Introduction

Section 17(A) of PD 1521 provides that the preferred ship mortgage issuperior to all other claims against the vessel except the following claims inthe order stated:

(1) expenses and fees allowed and costs taxed by the court and taxes due tothe Government;


mortgage;(6) damages arising out of tort; and(7) preferred mortgage registered prior in time. (section 17(A), PD 1521)

To determine whether a maritime lien exists, the Philippine Supreme Courtheld in the case of Crescent Petroleum, Ltd. v. M/V ‘Lok Maheshwari,’ et al.(474 SCRA 623) that the various tests used in the US are applicable, thus:

P.D. No. 1521 or the Ship Mortgage Decree of 1978 was enacted ‘to accel-erate the growth and development of the shipping industry’ and ‘to extendthe benefits accorded to overseas shipping under Presidential DecreeNo. 214 to domestic shipping.’ It is patterned closely from the U.S. ShipMortgage Act of 1920 and the Liberian Maritime Law relating to preferredmortgages. Notably, Sections 21, 22 and 23 of P.D. No. 1521 or the ShipMortgage Decree of 1978 are identical to Subsections P, Q, and R, respec-tively, of the U.S. Ship Mortgage Act of 1920, which is part of the FederalMaritime Lien Act. Hence, U.S. jurisprudence finds relevance to determin-ing whether P.D. No. 1521 or the Ship Mortgage Decree of 1978 applies inthe present case.

The various tests used in the US to determine whether a maritime lienexists are the following:

One. ‘In a suit to establish and enforce a maritime lien for suppliesfurnished to a vessel in a foreign port, whether such lien exists, orwhether the court has or will exercise jurisdiction, depends on thelaw of the country where the supplies were furnished, which mustbe pleaded and proved.’ This principle was laid down in the

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1888 case of The Scotia, reiterated in The Kaiser Wilhelm II (1916), inThe Woudrichem (1921) and in The City of Atlanta (1924). Two. TheLauritzen-Romero-Rhoditis trilogy of cases, which replaced suchsingle-factor methodologies as the law of the place of supply.Two. The Lauritzen-Romero-Rhoditis trilogy of cases, which replacedsuch single-factor methodologies as the law of the place of supply.

In Lauritzen v. Larsen, a Danish seaman, while temporarily inNew York, joined the crew of a ship of Danish flag and registry thatis owned by a Danish citizen. He signed the ship’s articles providingthat the rights of the crew members would be governed by Danish lawand by the employer’s contract with the Danish Seamen’s Union, ofwhich he was a member. While in Havana and in the course of hisemployment, he was negligently injured. He sued the shipowner in afederal district court in New York for damages under the Jones Act.In holding that Danish law and not the Jones Act was applicable, theSupreme Court adopted a multiple-contact test to determine, in theabsence of a specific Congressional directive as to the statute’s reach,which jurisdiction’s law should be applied. The following factors wereconsidered:

(1) place of the wrongful act;(2) law of the flag;(3) allegiance or domicile of the injured;(4) allegiance of the defendant shipowner;(5) place of contract;(6) inaccessibility of foreign forum; and(7) law of the forum.

Several years after Lauritzen, the US Supreme Court in the case ofRomero v. International Terminal Operating Co. again considered a for-eign seaman’s personal injury claim under both the Jones Act and thegeneral maritime law. The Court held that the factors first announcedin the case of Lauritzen were applicable not only to personal injuryclaims arising under the Jones Act but to all matters arising undermaritime law in general.

Hellenic Lines, Ltd. v. Rhoditis was also a suit under the Jones Act by aGreek seaman injured aboard a ship of Greek registry while in Americanwaters. The ship was operated by a Greek corporation which has itslargest office in New York and another office in New Orleans and whosestock is more than 95% owned by a US domiciliary who is also a Greekcitizen. The ship was engaged in regularly scheduled runs betweenvarious ports of the US and the Middle East, Pakistan, and India, withits entire income coming from either originating or terminating in theUS. The contract of employment provided that Greek law and a Greekcollective bargaining agreement would apply between the employer andthe seaman and that all claims arising out of the employment contractwere to be adjudicated by a Greek court. The US Supreme Court

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observed that of the seven factors listed in the Lauritzen test, four were infavour of the shipowner and against jurisdiction. In arriving at the con-clusion that the Jones Act applies, it ruled that the application of theLauritzen test is not a mechanical one. It stated thus:

[t]he significance of one or more factors must be considered inlight of the national interest served by the assertion of Jones Actjurisdiction. (footnote omitted) Moreover, the list of seven fac-tors in Lauritzen was not intended to be exhaustive.. . .[T]he ship-owner’s base of operations is another factor of importance indetermining whether the Jones Act is applicable; and therewell may be others.

The principles enunciated in these maritime tort cases have beenextended to cases involving unpaid supplies and necessaries such asthe cases of Forsythe International U.K., Ltd. v. M/V Ruth Venture, andComoco Marine Services v. M/V El Centroamericano.Three. The factors provided in Restatement (Second) of Conflicts ofLaw have also been applied, especially in resolving cases broughtunder the Federal Maritime Lien Act. Their application suggeststhat in the absence of an effective choice of law by the parties, theforum contacts to be considered include:

(a) the place of contracting;(b) the place of negotiation of the contract;(c) the place of performance;(d) the location of the subject matter of the contract; and(e) the domicile, residence, nationality, place of incorporation,

and place of business of the parties.In Gulf Trading and Transportation Co. v. The Vessel Hoegh Shield, an

admiralty action in rem was brought by an American supplier against avessel of Norwegian flag owned by a Norwegian Company and char-tered by a London time charterer for unpaid fuel oil and marine dieseloil delivered while the vessel was in US territory. The contract wasexecuted in London. It was held that because the bunker fuel wasdelivered to a foreign flag vessel within the jurisdiction of the US, andbecause the invoice specified payment in the US, the admiralty andmaritime law of the US applied. The US Court of Appeals recognizedthe modern approach to maritime conflict of law problems intro-duced in the Lauritzen case. However, it observed that Lauritzeninvolved a torts claim under the Jones Act while the present claiminvolves an alleged maritime lien arising from unpaid supplies. Itmade a disclaimer that its conclusion is limited to the unique circum-stances surrounding a maritime lien as well as the statutory directivesfound in the Maritime Lien Statute and that the initial choice of lawdetermination is significantly affected by the statutory policies sur-rounding a maritime lien. It ruled that the facts in the case call forthe application of the Restatement (Second) of Conflicts of Law. The

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US Court gave much significance to the congressional intent in enact-ing the Maritime Lien Statute to protect the interests of Americansupplier of goods, services, or necessaries by making maritime liensavailable where traditional services are routinely rendered. It con-cluded that the Maritime Lien Statute represents a relevant policyof the forum that serves the needs of the international legal systemas well as the basic policies underlying maritime law. The court alsogave equal importance to the predictability of result and protection ofjustified expectations in a particular field of law. In the maritimerealm, it is expected that when necessaries are furnished to a vesselin an American port by an American supplier, the American LienStatute will apply to protect that supplier regardless of the place wherethe contract was formed or the nationality of the vessel.

The same principle was applied in the case of Swedish TelecomRadio v. M/V Discovery I where the American court refused to applythe Federal Maritime Lien Act to create a maritime lien for goods andservices supplied by foreign companies in foreign ports. In this case,a Swedish company supplied radio equipment in a Spanish port torefurbish a Panamanian vessel damaged by fire. Some of the contractnegotiations occurred in Spain and the agreement for suppliesbetween the parties indicated Swedish company’s willingness to sub-mit to Swedish law. The ship was later sold under a contract ofpurchase providing for the application of New York law and wasarrested in the US. The US Court of Appeals also held that whilethe contacts-based framework set forth in Lauritzen was useful in theanalysis of all maritime choice of law situations, the factors weregeared towards a seaman’s injury claim. As in Gulf Trading, the lienarose by operation of law because the ship’s owner was not a party tothe contract under which the goods were supplied. As a result, thecourt found it more appropriate to consider the factors contained insection 6 of the Restatement (Second) of Conflicts of Law. The USCourt held that the primary concern of the Federal Maritime LienAct is the protection of American suppliers of goods and services.

The same factors were applied in the case of Ocean Ship Supply,Ltd. v. M/V Leah.

The above ruling is consistent with the rule of Philippine Statutory Construc-tion to the effect that the foreign court’s construction of a foreign statute willhave a persuasive effect on our courts. Thus:

The construction of foreign statutes is a question for the court. Where aforeign statute has been construed by the courts of the state or countrywhere enacted, such construction will be followed by the courts of otherstates or countries. The rule, however, rests merely upon the principle ofcomity. The opinions of text writers and the evidence of persons skilled

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in the foreign law may be resorted to in construing the foreign statute.Where a foreign statute has not been construed in the state of enact-ment, the courts of the state where the cause is on trial will construe it asthey would like a statute of their own state. (59 CJ sec 565 p 946.)

12.2. Sister ships

The Philippines has not adopted, nor is it a signatory to, the InternationalConvention to the Arrest of Sea-going Ships of 10 May 1952. Consequently, thePhilippines does not permit the arrest of sister ships other than the one inconnection with which the claim arose.

13. MORTGAGES

13.1. Recognized types of mortgages

Section 17(A)(7) PD 1521 does not distinguish among the priority of liensaccording to whether the mortgages are domestic or foreign. What is significantis the date of registration of the mortgage in the registry of ships and that themortgage was indeed registered and was duly and validly executed in accordancewith the laws of the foreign nation under which the vessel was documented.Section 15 of PD 1521 thus provides:

Sec 15. Foreign Ship Mortgages - As used in Sections 10 to 18 hereof theterm ‘preferred mortgage’ shall include in addition to a preferred mortgagemade pursuant to the provisions of this decree, any mortgage hypotheca-tion, or similar charge which has been duly and validly executed in accor-dance with the laws of the foreign nation under the laws of which the vesselis documented and has been duly registered in accordance with such laws ina public register either at the Port of Registry of the vessel or at a centraloffice; and the term ‘preferred mortgage lien’ shall also include the lien ofsuch mortgage, hypothecation or similar charge.

Section 17(A)(7) explicitly provides that priority should be given to the pre-ferred mortgage registered prior in time. Philippine law does not give any pri-ority to unregistered mortgages.

14. NON-PREFERRED CLAIMS IN REM

Philippine law does not recognize any non-preferred claims in rem.In accordance with section 17(B) of PD 1521, if the proceeds of sale are notsufficient to pay all creditors included in one number or grade, the residue shall

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be divided among them pro rata. If a balance remains after paying out all of thepriorities enumerated in section 17(A) of PD 1521, it follows that all thirdpriority claims will be paid pro rata. To the extent that any such creditor remainsunpaid, he is permitted to enforce his claim by personal action against thedefendant.

15. NON-RANKING CLAIMS

In most cases, when a vessel is sold by a court, sale proceeds are insufficient topay all claimants in rem as enumerated in section 17(A) of PD 1521. Occasion-ally, however, cases arise where funds are left over. These surplus funds belong,in law, to the shipowner. Unless there is good reason to the contrary, they willtherefore be paid out to the shipowner upon the filing of the necessary motionin court. If, however, the shipowner has other creditors whose claims do notqualify as claims in rem, those creditors may, pursuant to sections 17(B) and18(A) of PD 1521, satisfy themselves in whole or in part from the funds remain-ing in court.

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